GBP/USD has been shellacked during the month of August, and I suspect that we are getting ready to have a short-term bounce. This is mainly due to the overextension of the negativity, but this should only end up offering nice opportunities to pick up “cheap US dollars.”
Unfortunately, a lot of retail traders that I speak to think that the market has “moved too far.” This chart could end up being a great lesson, right along with the Euro/US dollar, that momentum takes a lot of effort to turn around. This is a market that is breaking down for a lot of fundamental reasons that people who move money pay more attention to than the charts. In fact, the charts are almost always secondary, assuming that big money is even looking at them.
Is there an opportunity to short?
You can see on the chart that I have a red circle around the lows back in 2020, and I do think that we are going to try to get down to that area. That would be a reading of 1.15, and it’s even possible that we break down through there if things really get out of hand. The market could rally a bit from here in the short term, but I suspect that the 1.20 level is going to be resistance, if for no other reason than psychology. After that, the 1.23 level then comes into the picture as another place I would like this short this pair if I get the opportunity.
The GBP/USD would be like a lot of major currencies against the US dollar, falling over the longer term. That doesn’t mean that we won’t bounce from time to time, but those balances should be thought of as opportunities. In fact, it’s not until we break above the 1.25 level that I start to take the idea of a British pound turnaround seriously. Furthermore, we would also have to have the Bank of England step away from its forecast for a recession, and therefore you need to be paying attention to the words that come out of London, but I just don’t see how that changes anytime soon. As the global economy continues to suffer, it’s likely that the US dollar will continue to strengthen against everything, and that most certainly would include the British pound.
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