- The GBP/USD has rallied a bit during the trading session on Friday as the 1.15 level has offered a significant amount of support.
- This is not a huge surprise considering that the 1.15 level has been important in the past, and of course, it is a large, round, psychologically significant figure.
- The candlestick for the day does look rather strong, but I think it’s going to be thought of as a potential relief rally more than anything else.
The British pound was oversold, and by extension the US dollar was overbought. A little bit of a correction makes quite a bit of sense, but the longer-term trend has not changed. It’s difficult to imagine where we could continue dropping easily, and I think at this point we are looking for an opportunity to fade short-term rallies that show signs of exhaustion. The 50-Day EMA is currently dropping toward the 1.19 level and continues to drop. Furthermore, it is important to notice that the 50-Day EMA has been dynamic resistance for quite some time, almost acting as a trendline.
Dollar Likely to Pull Back
This of course is assuming that we can rally that much because I don’t know that we can. There are some other places to pay close attention to, not the least of which would be the 1.1750 level. That’s an area where we have seen a lot of noise in the past, and therefore I think it’s going to be difficult to break above there.
On the other hand, if we break down below the recent lows, it’s likely that we could go down to the 1.15 level, which would be a very negative turn of events. Ultimately, the US dollar is by far the strongest currency out of the G 10, and I think that will continue to be the case. However, no market goes in one direction forever, so I do think that the US dollar is more likely than not ready to pull back in the short term, and therefore I think we have a scenario where we are looking to short this market at the first signs of exhaustion after a nice bounce. Friday may have been the beginning of that, but it is still in market that probably looks for more to come.
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