The GBP/USD pair tried to rally during the session after the Bank of England failed to produce more quantitative easing measures at its meeting during the session on Thursday. However, those gains were quickly reverse, and we formed a shooting star at the bottom of a significant fall in this market. The fact that we are sitting on top of support and formed a shooting star is normally a sign that a breakdown is about to happen, so this of course has caught my attention.
Looking at this chart, we are sitting just above the 1.50 level, a naturally supportive number just because of the large round psychological and packed of a number like that. Looking at this chart, there's no reason to think that we can break down, and a move to the 1.45 level is relatively reasonable from a longer-term charts perspective.
The British economy continues to languish, and in fact at the same time the US economy is doing "reasonably" well. It's not that the US economy is strong; it's just that everyone else has such a weak economy. United Kingdom of course is very high up on that list, and the central bank will have to do something to facilitate a looser monetary policy in the future. The fact that the next head of the Bank of England has already stated that he thinks more easing is appropriate, suggests to us that the Pound will continue to disintegrate over time.
Nonfarm payroll
The nonfarm payroll event may actually be a "win-win situation" for the US dollar. In one sense, if the number comes in strong, we already have a week British economy so it makes sense money flows back across the Atlantic and into the United States. Alternately, if we get a poor number, this only gives a boost for the U.S. Treasury market, which of course is denominated in US dollars as well. If that happens, this pair should fall also.
However, if we managed to get a number that is in the middle, this market will simply continue to do what it has been doing before, falling.
