The GBP/USD fell rapidly during the Friday session after trying to break through the 1.60 level. With that being said, it appears that the former support area is starting give way, and we have made a lower low by the end of the session which suggests much lower prices coming.
Looking at this chart, it is very obvious that we will be grinding lower over time. This more than likely has to do with the fact that the pair is very risk sensitive, and with all of the global headlines out there right now, it doesn't take much to imagine that the "risk off" trade will come back into play. In fact, that seems to be conventional wisdom at this point in time with the problems in the United States and its so-called ‘fiscal cliff”, the debt crisis and the European Union, and the general uneasiness of the growth situation around the world.
The scope of the range for Friday was fairly large, so I really think that this is a sign of things to come. Certainly, we have close towards the very bottom of the range, and making the new low just simply adds to that bearish case. While I am not necessarily bearish on the British pound itself, this does look like a chart that is running for the safety trade.
1.57
I believe that the 1.57 level below should serve as strong support, and because of this the move lower is probably somewhat limited. However, if that very strong support level does give violated to the downside, this could be the beginning of something rather drastic. This is not my base case, but certainly a contingency that we have to be prepared for.
At this point time, I am short of this pair and would continue to add to the position in small increments down to the 1.57 level. If the profits justify it, I could leave a small position on to see what happens at 1.57 as it could be the opening too much lower prices and much larger profits.