- The GBP/USD has rallied a bit during the trading session on Friday, but quite frankly it was a rather quiet session.
- With that being the case, the market is going to continue to see a lot of noisy behavior, but now that we are struggling with a 200-Day EMA, it’s difficult to imagine that we said we’re going to see a shot higher without some type of catalyst.
- In fact, you can make an argument that perhaps we are starting to see a resumption of the overall downtrend. Keep in mind that a lot of people pay close attention to the idea that the 200-Day EMA defines the overall trend.
Looking at this chart, the 50-Day EMA sits down at the 1.15 level, which is also a psychologically important level that a lot of people will pay close attention to. Ultimately, I think this is a situation where we are going to see the US dollar pick up momentum since the interest rates in America will continue to be much hotter than the United Kingdom.
Market is Overheated
Furthermore, we have a recession coming in the United Kingdom for the next 2 years, according to the Bank of England. In other words, this is a market that shouldn’t see much in the way of strength in Sterling. However, the big bounce that we have seen recently was probably since the market has been trying to reprice the idea of the British budget being better than it once was.
Nonetheless, this is a market that has gotten overheated, and therefore think it’s only a matter time before we drop. We break down below the lows this past week, I think it’s very likely that you will start to see downward pressure. Ultimately, I do think that we have further to go to the downside, but I will have to watch the market and understand that regardless of what I think or what the fundamentals say, if we do break higher, we could go as high as 1.25 next. I’m not looking for that, but it is of course a possibility based upon the technical structure and of course the fact that traders continue to look for handouts from the Federal Reserve. Ultimately, I figure the downside, but I also recognize that hope burns eternal.
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