- The GBP/USD experienced a slight drop during Thursday's trading session as the US dollar continued to outperform most other assets.
- While the Windsor Agreement provided some boost for the British pound, it is a sideshow that nobody really cares about.
- The focus is on the bond market, and the US dollar is like a sledgehammer to risk appetite.
Given the noisy yields, it's difficult to imagine the British pound suddenly taking off against the US dollar for a reliable and sustainable move. We've been gradually grinding lower, pressing up against significant support, and that support between current trading and the 1.1850 level is critical. If the market breaks below the 1.1850 level, we are likely to see the British pound get crushed, and the market could quickly drop to the 1.15 level, which is a psychologically significant figure and an area of interest in the past. The technical traders would find this scenario quite apparent, and the market would gain significant momentum. Therefore, it's worth monitoring to see if this trade plays itself out.
Double Top Could Come into the Picture
On the other hand, if we see a rally from here, the 50-Day EMA, and the 200-Day EMA indicators above are likely to offer significant resistance, particularly as a shooting star formed on Tuesday, catching the attention of traders worldwide. The area above that has also been noisy and challenging, indicating that it's only a matter of time before we fade the rally. Keep in mind that any selloff from here will probably be quite brutal, so you do not want to be on the wrong side of the trade. I have seen a lot of retail traders recently suggest that they were going to continue to buy the dips as the support has been so reliable, but quite frankly we are getting close to the bottom of a potential “M pattern”, which is a nasty pattern for bulls to be stuck in.
Even if we did break above all the moving averages, I think it’s probably only a matter of time before that double top comes into the picture and people look at the 1.24 level as a major resistant barrier. I just don’t see a situation where the British pound takes off against the dollar anytime soon, but of course fundamental reasoning could change as the UK sees more inflation.
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