- The GBP/USD found itself in a state of fluctuation during Wednesday's trading session, characterized by choppy behavior and a test of a bearish flag's uptrend line on the chart.
- This uncertain environment prompts us to closely monitor key levels and potential future movements.
Should the pound break below the 1.12 level, it could gain momentum to the downside. In this scenario, the 1.20 level becomes the initial target, followed by the 1.1850 level. The latter has historically acted as a strong support zone, and it is expected that buyers will emerge to support the British pound at that juncture.
However, until that point is reached, traders should anticipate continued volatility favoring a strategy of "fading the rally." This means that attempts to push the pound higher may encounter resistance, providing opportunities for short positions. This sentiment is underpinned by several factors, including the interest rate differential, geopolitical concerns, and recent bearish momentum over the past months.
On the upside, the 1.2350 level represents a formidable ceiling in the market. Additionally, the 50-Day Exponential Moving Average aligns with this level, acting as a short-term barrier. If the pound were to rally towards this region, it is likely to face substantial resistance, offering an appealing setup for potential short trades.
The Dollar Remains the Favored Currency
A noteworthy consideration is that a significant change in the trend direction may only be discussed if the pound manages to break above the 1.2350 level. While such a scenario doesn't appear imminent, it's a possibility to keep in mind. After all, there are a lot of noises out there that could cause problems.
Ultimately, the US dollar appears to hold the upper hand from a macroeconomic and global perspective, reinforcing the bearish outlook for the British pound. While market conditions remain turbulent and choppy, the prevailing sentiment favors a longer-term downside for the pound. With this, I look for selling opportunities going forward.
At the end of the day, the British pound's recent performance has been marked by volatility and testing key support and resistance levels. Traders should remain cautious and be prepared for potential shorting opportunities while monitoring the 1.2350 level as a potential pivot point. The US dollar remains the favored currency, given the current economic climate, although the market's future remains uncertain, and surprises are always possible.
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