- The GBP/USD had been following a downward trajectory of the last week or so, but it did stall a bit at the 1.10 level during trading on Monday, showing that there might be the slightest hint of support.
- My suspicion is that it has more to do with psychology than anything else, and at this point I’d be more than willing to shorten any rally that showed any signs of hesitation.
- The 50-Day EMA sits right around the 1.15 level and is dropping rapidly. How think you need to pay close attention to the 50-Day EMA, because you can see it has offered itself similar meaning to a downtrend line.
To the downside, if we break down below the 1.10 level, it’s very likely that this market goes down to the 1.07 level, and then the 1.05 level which I believe does need to be retested before it’s all said and done. Clearing that level, then we begin to talk about parity, something that I think is much more likely than most people realize.
Wait For a Lot of Choppiness
At this point, it’s not till we break above the 50-Day EMA in the 1.15 level that I start to think about going long. Furthermore, I would need to see some fundamental reason to do so as well, and if the Federal Reserve is as hawkish as it’s been, and of course be Bank of England still needs to bail out pension funds through the bond markets, I just don’t see why you would be a buyer this market. Sure, there will be the occasional bounce, but that bounce is not something that you should be chasing. In fact, those bounces should give you an opportunity to load up on short positions.
Expect a lot of choppiness, but you can see we have been in a long-term downtrend and the fundamentals really haven’t changed. It is not until the Federal Reserve stops quantitative easing that you will see currencies like the pound have sustainable rallies. As the Federal Reserve is nowhere near doing that, you can start to draw conclusions as to what the actual play is, but I clearly believe in the downside in this market as these trends last longer than people expect, and of course there’s almost no good coming out of the UK as far as news is concerned.
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