- The GBP/USD rallied during the trading session on Monday to break above the 200-Day EMA. By doing so, the market looks as if it is ready to continue going higher, but we have a couple of potential problems in the mix over the next several days.
- To begin with, we have the speech by Chairman Jerome Powell on Tuesday, and one would have to think that he is not going to be too happy about the fact that risk assets have rallied again.
- That being said, we also have the CPI numbers coming out on Thursday, and then the earnings season starts on Friday. In other words, there are a lot of potentially noisy days ahead. With that in mind, I would expect a lot of issues.
While we could rally in the short term, I’m still a bit concerned about the 1.25 level. It had obviously caused a lot of noise when we got up there last time, so I would expect more of the same. In other words, I believe that the market is probably somewhat limited in how high it can go unless of course Jerome Powell completely surprises everyone.
Be Cautious
More likely than not, I think we get a shot higher on the CPI numbers, much higher than people anticipated. That would almost certainly be US dollar positive, and risk negative. We’ll have to wait and see whether or not that happens, but in the short term, it certainly looks as if we are threatening to break above the 1.22 level, which in and of itself would be a bit of a victory.
Underneath, we have the 50-Day EMA, which of course is a massive technical indicator that a lot of people pay attention to. It is because of this that I think if we break below it, that will almost certainly send in a lot of selling pressure. In the short term, looks like we are comfortable going back and forth, perhaps with a more upward tilt, but whether or not that continues to be the case could very well be a different story. Because of this, I think you got a situation where you have to be very cautious, but I also recognize that there should be plenty of trading opportunities for those who are willing to be short-term.
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