While it seems as if the US dollar is on its back foot these days, whether we have changed the trend remains to be seen, although it’s been clearly bullish over the last couple of months.
- The GBP/USD pulled back a bit during the trading session on Tuesday, reaching the 1.23 level.
- The market looks as if it has formed a little bit of a “double top” with the 1.25 level being a significant resistance barrier.
- Ultimately, the market will have to pay close attention to the 1.25 level because it not only is a psychologically important level but is also an area where we have seen action previously.
- If we were to break above it, that would obviously be a very bullish sign, as we have finally broken through an area that’s been very difficult.
However, it looks like the market is going to go down to the 200-Day EMA with any sense of negativity out there, and of course, the British pound itself is a bit of a laggard when it comes to major currencies against the greenback. If we get a sudden push back into the US dollar, this might be one of the first places I look for US dollar strength. Breaking down below the 50-Day EMA, which currently sits just below the 200-Day EMA, and threatening to form the “golden cross.” While I don’t necessarily think that is an indicator that is timely, the reality is that it will attract a certain amount of attention.
Bear Market Rally Expected
If we break down through those moving averages, that opens a significant selloff just waiting to happen, probably closer to the 1.20 level. Breaking down below the swing low just underneath there opens the possibility of a move down to the 1.15 region, an area that is not only psychologically important but previously had been significant resistance. This would be a “risk-off move” in the currency markets.
If we can break above the 1.25 level on a daily close, then I believe that the 1.2750 level above is a potential target, with a 1.30 level after that being even more enticing. While it seems as if the US dollar is on its back foot these days, whether we have changed the trend remains to be seen, although it’s been clearly bullish over the last couple of months. The biggest problem I have right now is that we have sold off so drastically that a vicious bear market rally would be expected.
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