- The GBP/USD currency pair has been all over the place during the trading session on Thursday, as the Bank of England raised interest rates by 50 basis points.
- We are sitting just below the 50 Day EMA, and therefore a certain amount of technical resistance should be thought of as existing in this area.
- It is important to know that a lot of traders will be paying attention in this area, and it’s also important to notice that although the Bank of England raised rates, the British pound initially plunged.
Federal Reserve VS Bank of England
This is because the British economy is suffering at the hands of inflation, but so is everybody else. At this point, people are starting to pay close attention to the interest rate differential between the two economies, which favors the United States, but it has narrowed quite a bit now that we have seen the BOE act. That being said, we have the jobs number coming out on Friday, and that will be the next major catalyst.
If we were to break down below the bottom of the candlestick, we are almost certainly going to see this market test the 1.20 level. Breaking down below that level then opens up the possibility of a plunge down to the 1.18 level. If we can break it down below there, then the market more likely than not will drop to the 1.16 level. Anything below there becomes a wipeout for the British pound. It is likely that you would see some type of catastrophic situation where the US dollar strengthens against almost everything when you have that type of move. Ultimately, this is a market that I think will continue to be very noisy in general, but it looks to me like you are still in a relatively strong downtrend. In fact, it’s not until we break above the 1.25 level that I think the entire trend has changed, something that will take quite a bit of effort to make happen.
Pay close attention to how this market closes on Friday because it could give you an idea as to how people feel about the British pound and the US dollar as holding a currency over the weekend is a completely different situation altogether. Because of this, watch what the market does, not what pundits say.
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