- The GBP/USD pair has fallen significantly during the trading session on Friday as we ended the week.
- The market now looks likely to continue dropping given enough time, but ultimately, it’s a question of how quickly it’s going to happen.
- The US dollar has been like a wrecking ball against almost everything, the British pound won't be any different.
- The Bank of England has recently admitted that the British economy is almost certainly going into recession.
When you look at this chart, it’s obvious that the downtrend is very strong, and it will more likely than not continue. If we break down to a fresh, new low, then it’s likely we go down to the 1.15 level. The 1.15 level opens up the possibility of a move down the parity over the longer term. I think that’s a bit of a stretch, but I would also have said that 1.18 would be a stretch just a year ago. Rallies at this point in time should continue to be a selling opportunity, especially as the 1.20 level above is a large, round, psychologically significant figure, and an area that previously had a certain amount of support. That could bring in a certain amount of “market memory” in a market that continues to see a lot of reasons to drop.
How do interest rates affect the GBP/USD pair?
Keep in mind that the interest rates in America continue to climb in relation to other ones, so even if it does see a little bit of a pullback, the reality is that the spread between the United States and other economies should continue to cause downward pressure. In fact, it’s not until we can break above the 1.25 level, maybe even the 1.26 level that I would consider this a market that you can buy. Obviously, you need to see a little bit of a bounce in order to show signs of exhaustion or a continuation to start shorting yet again. I would not chase the trade in this area but would follow other traders. Ironically, one of the most obvious signals would be if the EUR/USD pair closes below parity on a daily close, even though it has nothing to do with this pair whatsoever. Either way, I have no interest in buying anytime soon and I would like to fade any signs of a bounce that fails.
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