GBP/USD Forecast: Pound Gives Back Previous Gains

The British pound had a very bullish Wednesday session, but during the day on Thursday, we started to see that unravel a bit. Initially, the market did take off to the upside but then turned around to fall rather hard. By doing so, the market shows just how precarious the situation is for the Sterling bulls. The biggest problem is probably not so much the British pound, but it is the US dollar being so strong. After all, there are a lot of risks out there right now, and therefore it suggests that a lot of people will be running towards the bond market or at least the safety of the US dollar.

The 50 Day EMA has been drifting lower for quite some time, looking very likely to approach the 1.32 level. The 1.32 level is an area that has been important previously, so it all ties in together for a potential ceiling in the market. Having said that, after the action on Thursday I am not necessarily going to be holding my breath for that to happen. At the very least, there has been a bit of a “shot across the bow” of any rally happening.

Underneath, the market did pierce the 1.30 level at one point, and if we were to break down below that candlestick, it is likely that the market could go to the 1.28 level, although it should be said that there is a lot of noise between the 1.30 level and the 1.28 level. With all of that previous noise being in that area, I think it probably needs to hold as support if the British pound has any chance of recovering from a longer-term perspective. On the other hand, if we do break down from this point, I expect it to be very noisy and more of a grind lower.

Looking at this chart, we are obviously in a downtrend, so I obviously prefer selling. The market would have to clear the 1.32 level on a daily close for me to take a serious look at buying, and between now and then I would have to assume that we are looking more or less in a situation where you are looking to fade rallies that show the first hint of exhaustion. Keep in mind that volatility has been very high in most markets as of late, and this one could end up being just like those.