The GBP/USD pair fell during the Thursday session to break down below the 1.55 support level. The reason this is important is that it is the bottom of consolidation that we've seen during most of the summer. The cable is a very risk sensitive currency pair, and this could be signaling something a little bit bigger than just the price in exchange rate of the British pound.
This pair has been very consolidative over the last several weeks, and the fact that we manage to break the bottom after forming a shooting star on Wednesday is very telling. There must be significant pressure to the downside, and I believe that the hammer from late may which sits on the 1.5250 level is what the market is targeting.
The Bank of England is expected to continue to ease monetary policy, and the Fed has left things up in the air. Even if the Federal Reserve does choose to start easing again, it's very unlikely that any pop in this pair would last more than a day, possibly two. In essence, this would only offer another selling opportunity in my opinion as well.
US dollar reigns supreme
Even though the British pound has been relatively strong against its continental neighbor the Euro, the fact is that the world is buying the US dollar hand over fist. This is seen against many currencies, and as such I believe that this pair is more a referendum on the way the world feels about the US dollar and not so much the British pound.
As all currency pairs are a relative measure of two distinct assets, you need to buy the one the stronger of the two. Some simple, yet so many Forex traders try to make it more difficult than that. In the environment that we find ourselves in right now, the US dollar serves as a nice "safe haven currency.” There's nothing out there that suggests that this will change. With this in mind, I continue to buy the US dollar against most currencies and the British pound will be no different. If we manage to break down below the 1.5250 level, I suspect the 1.50 and then possibly 1.45 will be targeted. As for buying, I simply won't do it until we see a break in a daily close above the 1.58 level.