The British pound got hammered Friday as the interest rate announcement in the United States was much stronger than anticipated, sending the GBP/USD pair below the 1.24 handle and leaning toward the 1.23 level. Ultimately, this is a market that I think is stuck in a downtrend and has a couple of areas that we are about to burst through to go to much lower levels.
The size of the candlestick is rather bad, so that tells me that we will more than likely have a bit of follow-through and I don‘t have any interest in trying to buy this market as the 1.26 level above looks to be a bit of a ceiling in the market. If we break down below the 1.22 handle, it’s likely that we go down to the 1.20 handle given enough time. In fact, that‘s my target for the moment, and it’s interesting to see that the 1.20 level is an area that historically has been important.
The 50-day EMA sits above the recent rally, and I think you need to pay close attention to it as it has been a bit of dynamic resistance all the way down from the 1.35 handle and has been rather reliable. This does not mean that I expect the market to reach the 50-day EMA anytime soon, just that its something worth guiding your trading. Ultimately, I like the idea of shorting every time we rally and showing the slightest sense of exhaustion. If we can break down below the 1.20 handle, then things could get rather ugly.
The market turning around would have to overtake the recent high from a couple of weeks ago to look remotely bullish. At this point, then the market is likely to go looking to the 1.30 handle. The 1.30 handle is an area where we have seen a lot of support in the past, so it should be a significant amount of resistance due to “market memory.” If we were to break above there, then I would anticipate that the trend could change, but at this point, its obvious to me that we are not quite ready to see any serious attempt at that. The US dollar will continue to strengthen due to the Federal Reserve tightening, and be the biggest part of my portfolio.
