- The GBP/USD rallied a bit during the trading session on Thursday, as we continued to see downward pressure on the US dollar.
- That being said, we have to worry about liquidity as well, as we are heading into the holidays and therefore, I would not read too much into the day-to-day candlestick movements.
- However, this is a market that has been in an uptrend for a while, and of course we have to focus on the Federal Reserve.
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The Federal Reserve recently moved its dot plot suggesting that the market is going to continue to see lower interest rates. All things being equal, this is a market that I think continues to find buyers on dips, with the 1.26 level underneath offering support. After that, then we have a significant barrier of support near the 1.25 level. The 1.25 level also features a 50-Day EMA, which of course is an indicator that a lot of people are more than willing to jump in based upon recent action.
Keep in mind that the next week will be rather thin when it comes to liquidity, and that of course has its own problem when it comes to what happens with the market. With this being the case, I think this is a situation where the 1.28 level above is a barrier, and if we can break above there, then we could go looking to the 1.3150 level. This is a market that will continue to pay close attention to the interest rate situation in the United States, and as long as those rates continue to drop in the bond market, it does make a lot of sense of the US dollar softens. However, if we get some type of major risk off scenario, that could see the US dollar strengthen, but that is one of those things where we need to be cautious about the headline and whether or not the markets are actually concerned about it. All things being equal, looks like we will continue to see the US dollar find pressure on it in the next few months. That being said, if we see the US economy fall apart, then we could see the US dollar strengthen, but right now I just don’t see that happening anytime soon.
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