The GBP/USD has drifted lower again during the trading session on Tuesday as we continue to see the US dollar offer sanctuary. The US dollar will continue to find plenty of buyers since the markets are trying to price in a significant risk appetite event, and of course, we have the interest rates in America rising.
On the other side of the Atlantic, we have the United Kingdom looking very likely to continue seeing recessionary headwinds, and therefore I think it’s probably only a matter of time before you see the British pound punished time and time again. The British pound will more likely than not be a bit of a punching bag against the US dollar, but I also believe that this is a market that will have a nice bounce from time to time. Those rallies should be opportunities to pick up “keep US dollars” going forward.
Pound Sterling Likely to Continue Drifting Lower
- At this point, I think we will probably see an opportunity to drop down to the 1.15 level given enough time, but I also think it more likely than not will be very noisy.
- After all, we have already seen a lot of selling, so a lot has already been priced in. However, there’s no reason to believe that markets are going to suddenly must change attitude, and I do think that we have a long way to go before it would break the back of short sellers.
- At the very least, you have a 50 Day EMA sitting just above the 1.20 level, which in and of itself will be an area of interest.
This is a market that I think if you are patient enough, you should have plenty of opportunities to take advantage of the overall trend. If we were to turn around a break above the 1.23 level, you can start to talk about a different scenario, but I just don’t see how that happens as the Bank of England has already given up and admitted that the UK is going to go into a recession. In that environment, we typically will see the US dollar favored anyway, because the large money managers out there will be looking to protect their trading capital via the bond markets.
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