It’s probably worth noting that we are around those moving averages because although we’ve had a nice bounce, it is still theoretically a bear market bounce from an extremely oversold condition.
- The GBP/USD bounced a bit during the trading session on Monday, reaching the 200-Day EMA.
- The 50-Day EMA sits right there as well, so it does suggest that perhaps we are going to continue to be very noisy, and therefore it’s likely that we have a big fight on our hands. If we can break above these moving averages, then it’s possible that we could go to the 1.24 level.
- That’s an area that has previously been very resistant, and I think that resistance extends all the way to the 1.25 level, so if we were to break through all that, then I think the British pound takes off.
On the other hand, if we continue to hold onto that double top, then it’s likely that we could see the market continue to drop deeper. If we break down below the 1.1850 level, then it opens the bottom, and we could go looking to the 1.15 level. The 1.15 level courses are a large, round, psychologically significant figure, and an area where I would expect to see serious support. There would be a lot of headlines around that area as well, so I think we probably would see a lot of bottom pickers down there trying to get involved.
Waiting for a Short-term Rally
Keep in mind that the Bank of England must deal with a very recessionary type of situation, and of course, although they have been hawkish, they are more likely than not going to go dovish long before the Federal Reserve does. Because of this, I think you continue to see a lot of pro-US dollar trading, but it’s also a situation where I think eventually the situation in Great Britain itself becomes a problem.
It’s probably worth noting that we are around those moving averages because although we’ve had a nice bounce, it is still theoretically a bear market bounce from an extremely oversold condition. It is because of this that I am looking for signs of exhaustion so that I can start shorting again. Until I get that, it’s very unlikely that I will be heavily involved in this pair, but I do recognize it could be setting up for a bigger move. Because of this, I am going to wait to see a short-term rally that shows signs of exhaustion before I start putting money to work, and then I will do so slowly.