GBP/USD Forecast: British Pound Threatens a Breakdown

The 1.19 level underneath being broken would kick off a major “M pattern”, which measures for a move down to the 1.15 level.

  • The British pound initially tried to rally a bit during the trading session on Monday but has turned around to threaten a breakdown below the 1.20 level.
  • This is a psychologically important level, and it is worth noting that the US dollar is strengthening against almost everything.
  • The jobs number on Friday was much hotter than anticipated, so perhaps market participants are finally getting it through their head that the Federal Reserve is in a big fight, and will have to continue to look at their jobs as such.

Expecting a Move Down to the 1.15 Level

Looks like we are trying to form an inverted hammer, which can be a bullish sign if you break above the top of it but I think at best we would be looking at a situation where we are trying to get back into the consolidation area. I don’t like the idea of buying the British pound at the moment, because although it’s not as bad as once feared in the United Kingdom, the reality is that if we are going to have a global recession, and the demand for British pounds will be much less than US dollars.

The 1.19 level underneath being broken would kick off a major “M pattern”, which measures for a move down to the 1.15 level. By the time this is all said and done, that is what I am expecting. That being said, you don’t take that trade until you get that signal. Right now, it looks like we are trying to form that Forex pattern, it will be interesting to see if that stays the case. The 50-Day EMA just barely broke above the 200-Day EMA before turning around. This is pretty common, as these are lagging indicators and the market will often go out of its way to punish the most amount of people it can. With this, I think you got a situation where it can take much fear to get a deep dive for a lot of currency pairs against the greenback, let alone the British pound which has been another performer for a while. In order to get actually long-term bullish, we would have to break above the 1.25 level, something that is 500 pips away now and looks increasingly unlikely based upon the price action over the last couple of days. I also would fade short-term rallies.

GBP/USD Chart

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Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.