GBP/USD Forecast: GBP Ceases Selling Pressure

Keep an eye on the 10 year note yields more than anything else, as it could guide you as to whether or not the dollar or the pound becomes more attractive in the short term.

• The GBP/USD currency pair fell a bit on Friday to close out the week on its back foot.
• Ultimately, we should take a look at this through the prism of fading every short-term rally that we can.
• The 1.20 level underneath is an area where we see a lot of interest, due to the fact that it is a large, round, psychologically significant figure.
• If we break down below there, then it’s likely that we could go back down to the lows of the 1.18 level.

Shorting Opportunities Likely Ahead

The market breaking above the 1.2250 level could open up the possibility of a move to the 1.24 level. Ultimately, the market is likely to see a lot of noisy behavior, but that should be expected due to the fact that the interest rate markets are all over the place as well. Keep in mind that the market is in a longer-term downturn, so one would have to assume that sooner or later we get an opportunity to start shorting again.

The 1.24 level is a major resistance barrier from intermediate time frames, so breaking above that does make a statement. However, I need to see this market take out the 1.26 level to change the overall attitude, and I think it is probably a scenario where any rally gets looked at with suspicion, and I’d be more than willing to pay those rallies as the opportunity to pick up US dollars “on the cheap.” Remember, it was not long ago that the Bank of England raised interest rates by 50 basis points, but then also stated that the UK was more likely than not going to end up in a recession.

The 50-day EMA offers a little bit of intrigue to this area, but we have sliced through it enough times in the last couple of weeks that I think it’s just more or less showing that the market is confused. This is a scenario where the interest rates in America will continue to outperform the United Kingdom, so I think it’s probably wise to keep an eye on the 10 year note yields more than anything else, as it could guide you as to whether or not the dollar or the pound becomes more attractive in the short term.

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