By: Christopher Lewis
The GBP/USD pair is a highly risk sensitive one. The British Pound is currently in the crosshairs of bears as the United Kingdom is so heavily exposed to the problems in the European Union, not the least of which includes the banking sector of Britain, which is most certainly holding debt in that region.
With the inclusion of a haircut for Greece, it can only be a matter of time before other countries will ask the same. In this backdrop, it is hard to understand exactly what the losses will be by UK banks, but it certainly must be formidable. The pair has recently seen quite a bounce, but the move has probably been a bit on the parabolic side as we have seen a 500 + pip move in a month.
With the austerity measures signed into law by the Greek Parliament, one would think the risk-on sentiment would start moving forward. However, we saw most enthusiasm trampled during the Monday session, and it appears that perhaps a little bit of reason may be entering into this pair as the move was simply too far, too fast.
1.58 And Shooting Stars
The weekly chart shows a shooting star from last week, and at the close of Monday, we have broken through the bottom of that range. Because of this, the pair is a sell for me at this point, and becomes even more so if the 1.57 level gets violated. The move I am expecting is as low as 1.53, but 1.55 will more than likely cause a bounce as well. The world seems to have more questions than answers to the economic problems in general at the moment, and a pullback in these riskier currencies makes sense.
The 1.58 level is also the 61.8% Fibonacci retracement from the last bearish move, and the fact that it held up means that the 1.57 level, which is the 50% retracement, will be the next big test. Because of this, I feel the move below it is a bearish indication. For me, I think this pair is a sell at this point in time. If the 1.53 could ever get broken below – we would see a massive move to 1.40 at that point.