The GBP/USD initially tried to rally on Tuesday but found a lot of resistance just above as the CPI number in the United States came out much hotter than anticipated. Because of this, people are starting to focus on the fact that the Federal Reserve will have to remain very hawkish, and therefore the tight monetary policy should have money flowing back into the dollar overall.
On the other side of the Atlantic, you have the Bank of England which must deal with a recession. Granted, I believe that the United States is also going to go into recession, but in a global recession, people tend to buy US Treasuries. Ultimately, this is a market that I think is one that you will return to start shorting every time there are signs of exhaustion after a short-term rally. The British pound will continue to suffer in general, and if we break below the hammer from last week, we could very well see the British pound drove down to the 1.1250 level.
Market Likely to Continue to See Momentum
- On the other hand, if we break above the top of this candlestick, that would be a very bullish sign, perhaps allowing the British pound ago looking to the 50-Day EMA.
- After that, you have the will .20 level, which is even more resistant, and between there and 1.23, I believe there is a lot of noise that could come into the picture and cause the market to have a bit of a “ceiling.”
- Ultimately, we are in a longer-term downtrend, so any rally must be thought of as an opportunity for picking up “cheap US dollars”, as it is a favored currency for traders around the world to own.
The size of the candlestick of course is rather bearish, and these types of candlesticks typically don’t happen in a vacuum, meaning that the market will probably have some follow-through. In fact, I may even look to short-term charts for signs of exhaustion that we can start fading again, as the market is likely to continue to see momentum more than anything else. At this point, I cannot think of any scenario which I’m willing to start buying British pounds, unless of course the Federal Reserve suddenly changes its overall attitude, but that is even less likely after this hot CPI figure.
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