Position sizing is your best friend in these times.
- The British pound started Wednesday’s trading session on a high note, rallying against other major currencies.
- However, the GBP/USD exchange rate faced resistance between the 1.24 and 1.25 levels, leading traders to adopt a “fade the rally” approach in the short term.
- Additionally, the global economy’s slowdown and credit issues could prompt traders to shift towards the US dollar, which is often seen as a safe-haven currency.
The 50-Day EMA is currently sitting just above the 1.22 level, which has been a significant area of noise in the past. The 200-Day EMA is also below this level and could serve as a target in the event of a move towards it. However, such a move would require the US dollar to strengthen, which is a possibility given the current economic concerns.
On the upside, if the pound breaks out above 1.25 and closes on a daily basis above this level, it could signal a bullish trend in the market. In this scenario, the pound could potentially rise towards the 1.2750 level, which has been a significant resistance level in the past.
Traders should keep an eye on market sentiment and risk appetite when trading the pound. Other markets can also provide valuable insights into how traders are feeling during trading sessions. Additionally, traders should note that the US dollar is often seen as a safe-haven currency, and traders may flock towards it during periods of uncertainty.
Furthermore, traders should also pay attention to the Bank of England’s monetary policy and economic data releases, which could impact the pound’s direction. The Bank of England has signaled a more hawkish stance on inflation, and any signs of higher inflation could prompt them to raise interest rates, which could boost the pound. Traders should also monitor any Brexit-related news and developments, which could lead to increased volatility in the pound.
Overall, the pound remains a highly volatile currency, and traders should exercise caution and diligence when trading it. The market sentiment and global economic concerns are likely to influence the pound’s direction in the short to medium term. Therefore, traders should be vigilant and adjust their trading strategies to account for potential volatility and risk appetite in the market. Afterall, this entire year has been one big mess of volatility going back and forth, and there is no reason to think that changes anytime soon. Position sizing is your best friend in these times. That being said, I still believe that there is something ugly out there, and it will increase demand for dollars longer-term.
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