- The GBP/USD experienced a turbulent trading session on Friday, initially declining and further reacting to the Non-Farm Payroll announcement.
- The Bureau of Labor Statistics revealed an impressive addition of over 300,000 new jobs in the United States, nearly three times higher than anticipated.
- This led to a brief spike in interest rates, creating a flurry of activity in the market. However, the day took an unexpected turn, prompting questions about a potential trend reversal, as we have seen a massive shot higher.
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While the sudden shift in market sentiment suggests a bounce, it's important to note that this is unlikely to signal a long-term trend change. The British pound has been oversold for an extended period, making a corrective rebound plausible.
One crucial level to watch is the 1.2350 mark, which could serve as a pivotal point. Any signs of exhaustion in this vicinity could prompt a renewed interest in selling positions. Notably, a "death cross" recently occurred when the 50-day Exponential Moving Average dipped below the 200-day EMA, typically considered a long-term bearish signal.
On the flip side, the 1.20 level has demonstrated substantial support and has already prompted a modest bounce. It's probable that this level will continue to attract market attention as a potential target. A breakdown below 1.20 could lead to a test of the 1.1850 level, a historically significant support level associated with previous swing lows and significant rebounds. If breached, this level might usher in a more pronounced wave of selling.
Watch Key Support and Resistance Levels
Nevertheless, it's important to remember that markets rarely move in a single direction indefinitely. The current rebound in the British pound should be viewed as an opportunity to acquire "cheap US dollars" unless there is a significant fundamental shift, which is not currently on the horizon. Some of the market's reaction may also be attributed to profit-taking ahead of the weekend.
As we observe the market's performance closely, one noteworthy detail is the challenge the market faces in breaking above the top of a previously formed shooting star pattern. This pattern could serve as an initial point of resistance.
In conclusion, the British pound navigated a day of market volatility in response to robust US job data. While the pound may experience short-term rebounds, it's essential to maintain a cautious approach, as the overall trend remains uncertain. Watching key support and resistance levels will be pivotal in determining the currency's future direction, and signs of exhaustion may signal potential selling opportunities.
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