For three trading sessions in a row, the GBP/USD currency pair is subjected to selling operations, as a result of which it settled around the 1.2105 support level. It is close to testing an important support 1.2045, which supports more bears’ control of the trend. The gains of the GBP/USD last week brought it to the resistance level of 1.2277, but as I mentioned many times before, the gains of the currency pair will remain subject to selling as long as the US dollar is strong with the expectations of raising the US interest rate and the investors’ demand for it as a safe haven. On the other hand, sterling is in the position of worrying about a strong recession in Britain, as well as worrying about the future of political life in the country.

According to the fundamental analysis, the GBP/USD is trading affected by the announcement that the UK’s primary GDP for the second quarter exceeded the expected change (Quarterly) by -0.2% with a change of -0.1%. The Equalizer (YoY) also beat expectations at 2.8% with a 2.9% reading, while June GDP beat expectations (MoM) at -1.3% with -0.6%. On the other hand, Industrial Production for June came in stronger with -0.9% (MoM) change vs. -1.3% expected. Industrial production for June also outperformed both estimates (MoM) and (YoY) at -1.8% and 0.9% respectively with readings of -1.6% and 1.3%.

From the US, the Michigan Preliminary Consumer Confidence Index for August exceeded expectations at 52.5 with a reading of 55.1. Initial jobless claims exceeded 263 thousand with 262 thousand, while continuing claims lost 1.407 million with 1.428 million.

GBP/USD Technical Analysis

In the near term and according to the hourly chart, it appears that the GBP/USD is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current declines towards 1.2107 or lower to 1.2067. On the other hand, the bulls will target short-term profits at around 1.2164 or higher at 1.2204.

In the long term and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within an ascending channel formation. This indicates a long-term bullish slope in market sentiment. Therefore, the bulls will look to extend the current gains towards 1.2294 or higher to 1.2466. On the other hand, bears will look to pounce on profits at around 1.1980 or lower at 1.1806 support.

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The size of the candlestick is rather impressive, and therefore it does suggest that there is at least some interest in going higher.

The S&P 500 has rallied rather significantly during the trading session on Thursday to reach the 3900 level. At this point, the market looks as if it is trying to decide whether or not it is going to continue to break out to the outside, but we have the jobs number coming out on Friday which could have a major influence on where we go next. Because of this, I think we have the possibility of a complete reversal, or perhaps a move to the 50 Day EMA.

It’s difficult to guess where we are going next, but it is worth noting that we have a massive downtrend on our hands, and although we have seen a nice turnaround over the last week or so, the reality is we have a long way to go before things truly change. With that being the case, I like the idea of fading rallies at the first signs of exhaustion, and it would not surprise me at all to see a massive move on Friday. The problem of course is guessing where we are going to go next.

The size of the candlestick is rather impressive, and therefore it does suggest that there is at least some interest in going higher. However, it’s worth noting that the volume over the last several days has been less than impressive, so it does suggest that perhaps this might be more of a short-covering rally than anything else. Federal Reserve monetary policy continues to be a big problem, and therefore people are going to be cautious about getting overly bullish, but there are a certain amount of traders out there willing to gamble on what’s going to happen next. Until something truly changes, namely economic information, then it’s difficult to get overly aggressive to the upside.

That being said, if we were to take out the 4000 level to the outside, it’s possible that we could make a move to the 4200 level. At the 4200 level, I would consider this to be a major trend change. At that point, the S&P 500 will completely ignore the economy, or perhaps guess where it’s going next, and go much higher. One thing is for sure, there is going to be a lot of noise, as there is nothing but uncertainty out there.

We should continue to see plenty of resistance.

The Parisian CAC Index had a relatively strong session on Friday, engulfing the Thursday candlestick with an impressive move. That being said, the market is more or less in a consolidation area, and I think that’s probably how you have to look at the CAC currently. The size of the candlestick is relatively large considering what we have seen as of late, and I still believe that the €6200 level above is going to continue to cause problems. It is not until we break up up there that I think the French index can really start to take off.

If we do break above the €6200 level, I then suspect that the index will target €6500, where we had fallen from to begin with. This is an area that has been major resistance more than once, and we’ve formed a “M pattern” previously. Breaking through that would obviously change the entire outlook of the market, but right now it seems to be a bit of a tall order.

While the ECB is talking about a couple of token interest rate hikes, the reality is that the central bank will probably have to change their attitude relatively soon. If and when they do, that might be a clue that you need for the CAC to finally take off. Keep in mind that the French index is heavily tied to luxury goods, which in a global recessionary environment is not a good look. Because of this, I do believe that Paris will underperform some of the other indices on the continent such as Frankfurt, Amsterdam, and possibly even the Swiss.

I would anticipate more choppy behavior than anything else, and I think that much like other indices around the world, we just find this market in a little bit of an oversold condition. This is a short-term situation that will eventually either work off the froth by going sideways, or break down rather significantly. We could get a little bit of relief, but see that as a way to reload the short position that you may have at the moment. Keep in mind that a lot of traders are underwater at the moment, and will be looking to get out of the market as soon as they can get close to breakeven. Because of this, we should continue to see plenty of resistance.

I think at best we are probably looking at a “fade the rallies” situation.

The S&P 500 rallied on Wednesday to reach the 4000 level. However, we pulled back just a bit from this large, round, psychologically significant figure, as we continue to see a lot of volatility. Whether or not we can hang on to the gains is a completely different question, but at this point, I think we have a scenario where the markets will continue to show a lot of volatility. I believe at this point, it’s worth noting that we are trying to bounce from the bottom of the Bollinger Band indicator as well.

I do believe that any rally at this point is probably short-term in nature, so I’m looking for some sign of exhaustion to start selling. The 4100 level would be the next area of resistance, followed by the 4200 level. Underneath, I believe that the 3800 level could offer a bit of support and breaking down through that level will cause the stock market to take an absolute crashing dump.

Interest rates are starting to drop a little bit in the 10-year yields, so that does give bullish traders at least a little bit of hope, but ultimately, I think this is a scenario where you will continue to see plenty of problems plaguing the market, and plenty of fear to say the least. It’s not necessarily a market that I’m willing to get long of yet but breaking above the 4100 level is at least an attempt to change the overall trend, so it’s possible that we have the beginning of something a bit bigger. That being said, there are still a lot of concerns about inflation sticking around, and growth slowing. If that is going to be the case, there’s no real reason to think that stocks will climb over the longer term.

As Wall Street thrives on cheap money, they are essentially going to be waiting for the Federal Reserve to step in and save them. We are bouncing a bit from a 20% drop, which is typical as a lot of traders look at that as a great entry point for investments. That being said, markets can get a lot cheaper given enough time, so you need to be very cautious. I think at best we are probably looking at a “fade the rallies” situation.