The GBP/USD pair had a strong session on Monday, something that is a bit of an anomaly these days. This market has been dropping like a stone for some time now, and the fall to the 1.50 level has been stunning. In fact, I have spent more than one wasted trading session waiting to see a supportive candle in this market, as the bears have simply been in overdrive.
The Pound is indeed in a lot of trouble, and the British economy is expected to head into a recession again. For that matter, inflation is also showing rearing its ugly head, and as a result it is becoming more and more obvious that the Bank of England is expected to have to take drastic measures in the near future. Adding to that is the fact that the head of the Bank of Canada is about to take of the head of the Bank of England job. Mr. Carney has already stated that the next move should be easing, and as a result there has been very little reason to buy the Pound lately.
Dollar strength
On top of all of that, the US Dollar itself has been strengthening. In a perfect storm like this, the pair could only fall in the long run. The action that we are seeing at the moment makes sense though, as the 1.50 level is a large round number that should attract a lot of attention by traders as well. However, there is little reason for this pair to keep itself above that area other than the number itself.
Looking forward, I believe this pair goes down to perhaps 1.45 or so. The area that we are trading in at the moment could provide a short-term trading opportunity for the buyers, but I can’t see that much has changed between these two currencies. The weakness will eventually show itself again, and as a result I think the best way to trade this pair is to simply fade the rallies at this point. I think any time you get a weak looking daily candle – there is a chance to sell.