GBP/USD Forecast: Pound Gives Up Gains to Start Week

I think we are likely to see an extended move lower, albeit choppy.

The British pound initially tried to rally on Monday but gave back gains as the market shows hesitancy to go higher. The 50-day EMA is starting to reach towards the 200-day EMA above, which is near the 1.37 handle. That so-called “death cross” comes into the picture as well, so what we will see is a massive amount of selling pressure in that area if we get anywhere near there. The market more than likely will also have to be paying close attention to the downtrend line that sitting just above there as well.

The candlestick shows a significant amount of weakness, and I think what we are starting to look at is the market struggling with the idea of re-entering the descending triangle that I have marked on the chart, so I think it all ties together quite nicely. Given enough time, is very likely that we will go looking towards the 1.35 handle, which is a large, round, psychologically significant figure, but it is also an area where we have seen a little bit of a pushback anyway. With this being the case, the market is going to continue to look at that as a potential target, and perhaps even a potential support region.

As far as buying is concerned, it is almost impossible to consider doing so until we break above the 1.37 level on a daily close, and even then, it would have to be a substantial candlestick. If we do break above there, then the market could go looking towards 1.39 handle. That being said, we would need to see the US dollar sell off quite drastically against everything, and it is worth noting that even though the Bank of England has hinted at the idea of a rate hike as soon as the next meeting, the British pound sold off anyway. This tells you just how soft the British pound is likely to be. Because of this, I prefer selling signs of exhaustion like we had during the day on Monday. It would take a massive amount of momentum to turn this whole thing around, and at this point I think we are likely to see an extended move lower, albeit choppy.

GBP/USD

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.