- The GBP/USD tried to rally initially on Wednesday but continues to see a lot of noise near the 200-Day EMA.
- By giving up gains the way it has, it shows that the market is not ready to make a very big move at all, and I think it remains a “fade the rally” type of situation.
- The 200-Day EMA sits just below the 1.22 level, and a lot of people will pay close attention to that.
If we were to break above the 200-Day EMA, then we could see this market to investigate the 1.24 level, but that’s an area that has seen a lot of solid pressure just above it as well. Keep in mind that the Federal Reserve continues to remain tight, and of course, liquidity is an issue now so I’m not expecting massive moves one way or the other. In fact, between now and New Year’s Day, I suspect at best you are looking at a range-bound trading environment. If we do get some type of major announcement between now and then, the lack of liquidity could send this market soaring or plummeting.
Looking for Short-term Rallies
It is because of this that you need to be cautious with your position size since your whipping can be quite brutal if you are not careful. After that, then we have the Non-Farm Payroll numbers coming out in early January, and that obviously will attract a lot of attention in and of itself. Because of this, I think you get a situation where you are just looking for short-term rallies, but I would not put too much faith or money into the position, because you cannot simply look at this through the prism of normalcy.
The United Kingdom is heading into a recession, and the Bank of England has been a little less hawkish than people anticipated. This does set up for a little bit of negativity going forward, and of course with the world slowing down, that has people looking for the US dollar as safety. In a global recession, the US dollar always tends to perform very well, and I don’t see how this time is going to be any different. Furthermore, there is a severe shortage of US dollars around the world right now, so that will continue to play its part as well.
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