- The GBP/USD currency pair has been hanging about the 1.20 level during most of July.
- However, the market has been very noisy in general, due to the fact that the world is worried about a recession.
- Ultimately, this is a market that continues to see a lot of noise, but I think you can say that about almost anything.
- The market has been in a downtrend for a while, so I think it’s going to take a lot to change that.
Keeping an Eye on 1.20
The 1.20 level underneath would be crucial, as it is a large, round, psychologically significant figure, and an area where we have seen a lot of action previously. We had bounced significantly from that level a couple of weeks back, and now I think it’s very likely that we eventually get down to that level. If we break down below that level, then it opens up the possibility of a move down to the 1.18 level, possibly even the 1.15 level. However, it’s also worth noting that we have done a lot of damage to the British pound, so it’s going to be a scenario where the market may need a bit of a relief rally.
I will be looking at this potential relief rally as an opportunity and treat it as such. The first signs of exhaustion could be in a selling opportunity, just as we see the 1.24 level as a major resistance barrier. That area extends all the way to the 1.25 handle, so it’s not until we break above all of them that I think the British pound could have a bit of momentum. Remember, we had sold off so much that a bounce of one or two handles would not be out of the question. However, I will not be chasing the British pound higher, because it will need to prove itself.
This will be especially true when we get deeper into the summer, as the world will have to come to grips with the idea of a global recession. As long as that is a real threat, one has to favor the US dollar in general. The interest rate differential continues to favor the US dollar as well, so it’s all lining up in the same direction. Expect volatility to pick up not only in this market, but other markets as well.
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