The British pound jumped against the US dollar during the trading session on Monday as it bounced from a significant floor. That being said, we have to ask the question as to whether or not this can continue after all, the US dollar has been fairly strong.
The broader outlook for the Forex world has been very pro-US dollar over the last several weeks, and at this point in time, I don't think that anything has changed. However, keep in mind that we are at the bottom of a large consolidation area when it comes to this pair, so a little bit of technical bounce makes a certain amount of sense.
Top Regulated Brokers
Market behavior has been a bit all over the place as of late, and the fact that we have jumped in one direction for so long over the last couple of weeks, it was probably inevitable that the US dollar had to give back some of the gains. After all, the interest rates are dropping in America, and there is a big tug of war as to whether or not the Federal Reserve is going to do what the market thinks.
Are 2 Fed Hikes an Issue?
Speaking of potential risks in the GBP/USD market, the markets are trying to price in the idea of 2 Federal Reserve interest rate hikes between now and the end of the year, but this is not necessarily something that's a done deal. If that does in fact end up being something that the Federal Reserve pushes back against, that could drive the value of the US dollar down.
There is a significant amount of resistance just above in the form of the 1.33 level, but if we can break above there, then we have the 50-day EMA and the 200-day EMA both sitting right around the 1.3375 region. It's not until we break above there that I think the floodgates open.
Quite frankly, this looks like it could be a bit of an opportunity to start shorting again at the first signs of exhaustion due to the fact that there are serious shortages of US dollars around the world, and of course, the fact that the US dollar has been so strong against so many other currencies. Keep in mind, most of the turnaround was actually during the New York session, which is kind of its own animal.
The alternate scenario would be that we break above the 50-day EMA, and if that happens, obviously, I think the attitude and tone will have changed, probably across the board. The 1.35 level would be targeted, followed by the 1.36 level, but I suspect it would take a significant attitude change by most traders around the world to make that happen.
Ultimately, Patience is Key
At the end of the day, I think this is a pair that does offer a shorting opportunity at the first signs of exhaustion because there are a lot of concerns there about the global economy and it's also worth noting that the US dollar has been strengthening despite the fact that interest rates have been dropping for weeks, and if that's the case, then it shows that there's a real demand for dollars. It isn't just an interest rate differential play.
Because of this, I think you need to be very cautious, but as things stand right now, a little bit of patience could go a long way.
Ready to trade the GBP/USD Forex analysis? Check out the best forex trading company in UK worth using.