- The British pound gapped lower to kick off the trading week but then turned around to bounce back above the 1.15 level.
- At this point, the GBP/USD pair is oversold, so a bit of a bounce would not be a huge surprise.
- The 1.18 level above would make a nice target for those trying to get short-term gains, but for myself and prudent traders, I would rather trade with the longer-term trend.
In short, the market pierced a major round figure that should cause quite a bit of support. Now that it has done that, a bounce does make quite a bit of sense. You should also keep in mind that it was Labor Day in the United States, therefore a lack of liquidity would have been a major issue. Being oversold and the fact that there was no real news out over the weekend to get the US dollar moving suggests that perhaps recovery was necessary.
Stagflation Could Hinder the Pound Sterling
If we break down below the lows of the trading session on Monday, then it’s likely that we will continue to go much lower. I think it is probably only a matter of time before that happens, as the United Kingdom is almost certainly going to go into a recession, and at the same time, the Bank of England can only be slightly bullish at any given moment. After all, even though there is a lot of inflation to worry about in the UK, the reality is that the central bank only has so much room to wiggle, because a recession at the same time means that if you tighten monetary policy too much, you could do real damage and keep the in other words, the British economy has to worry about what is known as “stagflation.”
The 50 Day EMA is sitting around the 1.20 level and dropping lower. The 50 Day EMA will offer a little bit of technical resistance, and therefore I think you should think of that as essentially the” ceiling in the market”, especially combined with that big figure. I doubt we get that high, but I think if we do, then it is likely that we would see a lot of exhaustion to come back into the market. Regardless, as things stand right now, I have no interest whatsoever in trying to buy this bear.
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