By: Christopher Lewis
The GBP/USD has been showing significant strength over the last several sessions even as the United Kingdom has slipped back into recession. This is perhaps because members of the Bank of England openly mentioned the fear of a recession and inflation at the same time. In times of inflation, quite often a central bank is forced into a higher rates situation, and as the Federal Reserve is certainly a ways from hiking, it looks as this pair will continue to rise as the swap will only get bigger in the future.
However, there are going to be potential problems with owning British assets. After all, the UK relies on the European Union for 40% of its exports, and that customer is in trouble. Because of this, there is a real chance that this pop in the GBP/USD pair may only have a limited amount of life in it. However, there is certainly an upward bias in the meantime.
1.60
As long as this pair is above 1.60, I will only be buying it. It is at that point that I think a lot of the potential buyers that missed the move will want to join in. The pair is gaining while the outlook for England is somewhat shaky, but in reality price is everything. In the end, it doesn’t matter why a pair moves, just that it does. In other words, when all else fails, I tend to defer to Occam’s razor as it simply states that the simplest explanation is probably correct. The cable pair is going up simply because it is.
.png "GBP/USD Daily 42712")
The last few candles do show signs of exhaustion though, and as a result I expect a pullback. This isn’t a bad thing, as it should attract more buyers as it falls. The break above the 1.60 level meant something, and I doubt that it will change. With that being said, I am buying supportive candle above the 1.60 level, with 1.61 being another potential support level based upon a hammer at that point. Selling isn’t a thought until we are well clear of the 1.59 level and below the 200 day EMA.