GBP/USD is an interesting market at the moment. The pair continued to rise even as the risk appetite fell. However, the last couple of weeks have seen a bit of a pullback now, and the Wednesday session may have been the real start of something much more bearish. After all, there was always the potential support level at the 1.60, and until we broke it a bounce in this market was the more likely scenario.
The breaking of that area was important, but I still see the support level as being all the way down to the 1.59 level. Add to that the fact that the 200 day exponential moving average is at the very lows of the Wednesday session there is a chance that the bulls have finally started to get back into the market. The 200 day EMA is a favorite of trend traders, so those people would have been interested in the bounce.
The combined factors in the area have me wondering where we go next. We are sitting on the very precipice of a downfall, and if we continue lower – this pair could fall drastically. The fact that the Bank of England has revised growth lower and also has mentioned inflation. The combination of the two isn’t a good thing for the British economy.
A decision in the making
In the area that we are at, I see that we will decide the next couple of hundred pips. The bounce form here and a close above 1.60 will have me buying this market. However, a daily close below the 200 day exponential moving average will have me selling. I think that the move will be in the order of handles, not just some small dip or bounce. Because of this, I am very interested in this pair at the moment. Waiting for the right place or question to be answered is the essence of profitable trading, and I feel this is what is going on in this pair.
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The 1.65 level will be a potential target if we bounce higher, and the 1.55 level will be the target if we fall. The pair likes the 500 pip intervals historically, and as such tends to bounce between them over time.