- The GBP/USD has pulled back a bit during the trading session on Monday to kick off the week on its back foot.
- The 1.20 level above has offered a significant amount of resistance. Furthermore, we also have the 200-Day EMA, which of course makes a lot of traders pay close attention.
- The fact that the combination of the 2 have turned the market back around suggests that perhaps the correction could be ending.
- After all, the British pound must deal with a two-year recession coming down the road according to the Bank of England, and the US is looking at a relatively shallow recession as far as expectations are concerned.
The 50-Day EMA is near the 1.15 level underneath, which is a large, round, psychologically significant figure. Ultimately, this is a situation where we are between the 50-Day EMA and the 200-Day EMA indicators, which typically means that the market will eventually squeeze in one direction or the other. I would expect to see a lot of choppy behavior, as we try to determine whether the trend is going to reverse and go with a longer-term trend, or if the recent recovery has been something more important.
Pay Attention to Interest Rates Differentials
On the upside, if we were to break above the 200-Day EMA, the market could really start to take off at that point, initially trying to get to the 1.2250 level, and then eventually the 1.25 level after that. That of course is a large, round, psychologically significant figure, and will attract a lot of people. Given enough time, we have a situation where we will have to make the bigger decision, and of course must pay close attention to the interest rate differential between the 2 economies, and if the US interest rates start to take off again, that almost certainly will push a lot of downward pressure into this market and start to sell things off again. If we break down below the 50-Day EMA, we could be looking at a move to the 1.1250 level, possibly in the 1.10 level.
To start falling from here does make a certain amount of sense, because we had gotten overdone after that budgetary debacle coming out of the UK, so there was a little bit of a recovery from that panic. Markets tend to correct and then resume where they are going longer-term.
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