Potential signal:
- If the GBP/USD pair closes below the 1.2350 level on a daily candlestick, I am a seller of this pair with a target of 1.2150.
- I would have a stop loss at the 1.24 level above.
In my daily analysis of major currency pairs, the GBP/USD pair as one that I’m watching closely, because quite frankly I think we are squeezed between a couple of levels that could give us a major “heads up” as to where we go next. I do believe that we are currently looking at the situation of consolidation after an attempt to rally. However, that rally has been somewhat feckless, although there are a lot of questions to be asked going forward.
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Most of what you see here is the divergence between the Bank of England and the Federal Reserve. The Bank of England just cut the overnight rate by 25 basis points, while the Federal Reserve remains in a holding pattern. The MPC even had two members suggest that the cut should have been 50 basis points. This suggests that not only will England be in a rate cutting cycle, but it may actually accelerate. So far, the Europeans and the British have both held somewhat steady and their rate cutting, but Switzerland has cut by 50 basis points, suggesting that we could see a bit of a “domino effect” across Europe and the British Isles.
If that does in fact happen, it makes a lot of sense that the US dollar is the big winner. After all, we have a situation where the Federal Reserve has to stay somewhat still, due to the fact that the economy in the United States remains very strong, causing some inflationary headaches but at the end of the day but what is true is that the United States is by far the strongest major economy in the world, and of money is flowing into the US from other countries such as the UK and the EU. I believe at this point in time, the British pound is going to continue to struggle.
With that in mind, I am more than willing to fade rallies as they occur, taking advantage of any signs of weakness that I see. The 50 Day EMA currently sits at the 1.25 level, which is also an area that we’ve seen resistance at previously. The 1.2350 level underneath is the other level that I’m watching, because if we break down below there, it’s likely that the British Pound continues lower.
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