The GBP/USD rallied during Tuesday's trading session, piercing the 1.25 level, an area of significant psychological importance. This level had previously been viewed as a resistance point between the 1.24 and 1.25 levels, so a move above it would be a major breakout for a longer-term move, based on the charts.
However, if the market turns around and gives up the gains, it could indicate that the 1.25 level is a barrier that cannot be broken. In this scenario, we could see the market drop to the 1.23 level, and possibly down to the moving averages underneath. The 50-Day EMA has broken above the 200-Day EMA in a "golden cross," which attracts longer-term "buy-and-hold" traders.
It is important to note that much of this trend depends on the Federal Reserve and traders' expectations around its actions. Many believe that the Federal Reserve will have to cut rates soon, which could lead to a weaker US dollar. However, this would likely be due to a recession, during which the US dollar tends to perform well because there is little global growth to support other currencies.
Focus on the Market’s Movements
- As traders, it is essential to pay attention to what the market is doing, rather than what it "should be doing." If the British pound can sustain a daily close well above the 1.25 level, it is likely that the currency will continue to rise.
- Nonetheless, traders will need to wait and see how the market behaves in the coming sessions.
- Further adding confusion to the situation is that the JOLTS report coming out of the United States shows that there were fewer job openings than anticipated. Traders are already starting to bet that perhaps the Federal Reserve is going to have to back off its tight monetary policy.
Ultimately, the British pound has made a significant rally, piercing the 1.25 level, which is an area of psychological importance. While this could signal a major breakout for a longer-term move, there is a risk that the market could turn around and give up the gains. The "golden cross" is an attractive setup for longer-term traders, but the trend's success depends on the Federal Reserve and global growth. As always, traders should focus on the market's movements and adjust their positions accordingly. At this point in time, the market is during breaking back above the 1.25 level, so it’ll be interesting to see how this plays out.
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