The GBP/USD initially rallied on Wednesday but gave back the gains rather quickly as it looks like we are threatening the 1.16 level now. If we break down below there, then it opens up the possibility of a move down to the 1.15 level. Keep in mind that this pair is highly negative overall, and it does make a certain amount of sense that we would see the US dollar continue to pummel the British pound, because the United Kingdom is a bit of a mess, and as winter approaches, there are going to be major problems.
Rallies at this point in time should continue to be selling opportunities, especially as the Federal Reserve is going to have to continue to tighten monetary policy, and therefore it should continue to drive the value of the greenback higher. Beyond that, we have a lot of concerns when it comes to the global growth situation, and that almost always means that the US dollar is going to be a beneficiary without being the case, I think this is a market that continues to be more noise than anything else, but you should keep in mind that we will continue to see volatility.
Short-Term Bounce Ahead
- At this point, I have no interest in buying this pair but do recognize that we are probably due for a short-term bounce.
- This might be simple short covering on Thursday as we head into the jobs figure, but by the time the end of the day on Friday comes, I suspect that there will be people willing to short this pair again.
- I think at this point we are just now starting to see traders conclude that the situation in the European Union and the United Kingdom are going to be precarious at best this winter.
Money is flowing into the US dollar, and there is a shortage of US dollars in emerging markets. If that’s going to be the case, every time we rally, I will be looking for exhaustion to start shorting. I believe at this point the short-term “ceiling in the market” is going to be nearly 1.20 level. Not only do we have the large, round, psychologically significant number, but we also have the 50 Day EMA in that area as well.
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