- The GBP/USD broke lower during Friday's trading session, dropping below the 1.24 level.
- However, there is significant support underneath, near the 1.2350 level, and if the pound breaks down below that level, it could lead to a change in the market's trajectory. It is likely that the pound will go back and forth over the next several sessions, as traders try to determine what will happen next.
- Although the market recently broke above a significant resistance level near the 1.24 level, it's also worth noting that this resistance level is roughly 100 pips high.
If the pound breaks down below the 1.2350 level, it's likely that it could go down to the 50-Day EMA, which is closer to the 1.23 level. A further drop could open the possibility of a move down to the 200-Day EMA, which could lead to momentum to the downside. This situation would be a function of the US dollar strengthening across the board, as the British pound has been one of the big winners this year.
Traders Should Use Caution
On the other hand, if the pound breaks out to the upside and takes out the Friday candlestick of last week, it's possible that it could go looking to the 1.2750 level. If the 1.2750 level is broken to the upside, it could open the possibility of a much bigger move to the 1.30 level. In this scenario, it could become more of a "buy-and-hold" type of situation, opening a longer-term move. However, it would require a significant amount of effort and could lead to a much bigger move in the forex world.
It seems that the market is forming a little bit of a topping pattern, and as a result, the pound may experience some softness in the short term. Traders should keep an eye on the support levels and watch for any signs of a breakout or breakdown. If the pound breaks down below the 1.2350 level, it could lead to a shift in the market's momentum, but if it breaks out to the upside, it could lead to a significant move to the 1.30 level. As always, traders should use caution and trade wisely, as the forex market can be unpredictable at times, especially as we are trying to sort out if the global economy is going to slow down.
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