• The GBP/USD has attempted to bounce during the trading session on Tuesday as the selling pressure seems to be letting up a bit.
• We are in the midst of the Jackson Hole Symposium, and central bankers will be speaking quite a bit this week.
• People will be trying to figure out what happens next, as a lot of traders have decided to call the bluff of central banks.

There’s been this narrative going around that perhaps central bankers are going to pivot, because of poor economic numbers. What traders seem to be ignoring is the fact that inflation is out of control, and even though it is slowing down a bit, in places like the United States it’s 8.5% year over year, and in the United Kingdom, it’s over 10% year over year. Because of this, central banks are going to have to tighten, despite the fact that it will almost certainly cause a recession.

Recession is Coming

The Bank of England already said that a recession is coming, essentially confirming what most people want to say out loud. The market continues to see a lot of narrative from time to time that has people thinking differently, especially in stock markets. However, in the Forex world, you can see that traders are running towards the US dollar. That should continue to be the case, especially if Jerome Powell ends up putting rumors to rest about the Federal Reserve and pivoting.

It’s been quite an interesting sideshow, watching traders try to talk themselves into a pivot that’s not coming.The US dollar is going to be like a wrecking ball for the entire world, and the United Kingdom is not going to avoid this problem. However, rallies will happen from time to time, but those are going to be opportunities to pick up “cheap US dollars.” Going forward, I suspect it’s probably a “fade the rally” type of situation. In fact, is not to we break above the 1.25 level that I would consider buying the British pound. Even then, I will have to see what the fundamental noise and news is, because although technical analysis can help, in times like this it’s more about the fundamentals than anything else, as there have been so many crosscurrents at the same time.

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Expect a lot of choppy and nonsensical movement over the next several days.

• The GBP/USD currency pair broke down quite a bit Monday as we continue to see the US dollar strengthen against almost everything.
• The 50-day EMA is slicing right through the middle of the overall consolidation.
• It is probably only a matter of time before the British pound has to respect this one way or the other.

The 1.20 level underneath is an important area, and I think testing that is more likely than not going to cause a bit of noise, so I think we will have to see how that plays out. If we break down below the 1.20 level, then it’s likely that we will see this market break down to the 1.18 level. Breaking below the 1.18 level opens up the possibility of a much bigger move to the downside. In that scenario, I would anticipate seeing the US dollar strengthen against almost everything, not just the British pound.

Downtrend to Continue

Pay attention that the interest rate situation in the United States because rates continue to rise, which could send this market much lower. In fact, the market has been in a downtrend for quite some time, and I just don’t see that changing anytime soon. After all, we have seen a lot of strength in the greenback due to a worry about the global economy slowing down, which tends to bode well for the US dollar in general.

On the other hand, if we were to break above the 1.2250 level, then we could have the British pound looking to reach the 1.24 level. I think there is a significant amount of resistance all the way to the 1.26 level, and therefore it’s not until we break above there that I think the overall trend will change completely, and I think a lot of people would start to “FOMO” into this market. I don’t see that happening anytime soon, and therefore you need to be cautious about jumping “all in”, especially if you’re going to go to the upside as there is so much to work through to even make that happen. Ultimately, fading the rallies has worked and I think that will continue to be the case going forward. Expect a lot of choppy and nonsensical movement over the next several days.

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The downward pressure should continue, thereby pushing much lower over the next several months, perhaps to the end year.

• The GBP/USD currency pair fell Friday to crash into the 1.20 level.
• This is an area that has been important a couple of times, but I think at this point in time it’s more likely than not going to be an area that continues to attract a lot of attention.
• Ultimately, if we break down below the 1.20 handle, then it’s likely that we go down to the 1.18 level underneath.

Downtrend Continues

When you look at this chart, it’s easy to see that we have been in a downtrend, so therefore like many other currency pairs when it comes to trading against the US dollar. Interest rates in America rising will continue to put upward pressure on the value of the greenback, and therefore downward pressure on the British pound.

Was also worth paying attention to is the fact that the Bank of England raised interest rates by 50 basis points during the week, and the currency still fell. This was probably due to the fact that the Bank of England suggests that the English economy is going to slip into recession between now and the end of the year.

The 50 Day EMA sits just above and is dropping, so it looks like we are going to continue to see downward pressure and a bit of dynamic resistance in that general vicinity. If we do break above that area, which is extensively the 1.22 handle, then we could see the British pound try to squeeze to the 1.24 level. I would not hold my breath for that, as most rallies at this point in time will probably show signs of exhaustion on short-term charts that you can take advantage of. This is a market that has been rather negative for a while, and I just don’t see how that changes anytime soon considering that the geopolitical, macroeconomic, and interest rate situation has not changed much.

In this environment, it makes quite a bit of sense that the US dollar continues to see strength due to the fact that the market is trying to factor in a lot of negativity worldwide, which I think continues to be the main story. With that being the case, the downward pressure should continue, thereby pushing much lower over the next several months, perhaps to the end year.

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This market will continue to be very noisy in general, but it looks to me like it is still in a relatively strong downtrend.

• The GBP/USD currency pair has been all over the place during the trading session on Thursday, as the Bank of England raised interest rates by 50 basis points.
• We are sitting just below the 50 Day EMA, and therefore a certain amount of technical resistance should be thought of as existing in this area.
• It is important to know that a lot of traders will be paying attention in this area, and it’s also important to notice that although the Bank of England raised rates, the British pound initially plunged.

Federal Reserve VS Bank of England

This is because the British economy is suffering at the hands of inflation, but so is everybody else. At this point, people are starting to pay close attention to the interest rate differential between the two economies, which favors the United States, but it has narrowed quite a bit now that we have seen the BOE act. That being said, we have the jobs number coming out on Friday, and that will be the next major catalyst.

If we were to break down below the bottom of the candlestick, we are almost certainly going to see this market test the 1.20 level. Breaking down below that level then opens up the possibility of a plunge down to the 1.18 level. If we can break it down below there, then the market more likely than not will drop to the 1.16 level. Anything below there becomes a wipeout for the British pound. It is likely that you would see some type of catastrophic situation where the US dollar strengthens against almost everything when you have that type of move. Ultimately, this is a market that I think will continue to be very noisy in general, but it looks to me like you are still in a relatively strong downtrend. In fact, it’s not until we break above the 1.25 level that I think the entire trend has changed, something that will take quite a bit of effort to make happen.

Pay close attention to how this market closes on Friday because it could give you an idea as to how people feel about the British pound and the US dollar as holding a currency over the weekend is a completely different situation altogether. Because of this, watch what the market does, not what pundits say.

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From a longer-term perspective, you can make the argument that we have a situation where we have been very noisy and have seen a lot of chop, which can be the beginning of a trend change, but we’ve got to do more work in the bond markets.

• The GBP/USD currency pair continues to chop around as it looks for some type of directionality.
• That’s been the case with almost everything I look at recently; the markets are simply grinding accounts up without driving any type of directionality on the charts.
• The British pound has been an excellent example of a place that you don’t necessarily want to put a lot of money into, because it doesn’t know where it wants to be.

Market Keeps Grinding Away

The 50-day EMA sits just above and that could cause a little bit of resistance, but at the end of the day, it does not seem very likely to be a major factor one way or the other, as the markets have simply decided to grind back and forth against each other in order to do as much damage as possible. This is the problem with so much noise out there because we have the Federal Reserve seemingly hell-bent on muddying the waters, and the result is the charts that you see here.

The Federal Reserve has lost so much credibility that people simply do not believe that it will do what it takes to fight inflation. They probably will, but right now the market does not believe that, and as a result, you are seeing the US dollar get hit. At the other end of the spectrum, you have the British pound which is a bit of a basket case itself, so it should not be a huge surprise to see that we have absolutely no clarity here. From a longer-term perspective, you can make the argument that we have a situation where we have been very noisy and have seen a lot of chop, which can be the beginning of a trend change, but we’ve got to do more work in the bond markets. The bond markets are starting to tell the world that the Federal Reserve is going to pivot, but the Federal Reserve is refusing to say so. Inflation is supposedly going down, but it is still at extraordinarily high levels. I suspect at this point the only true losers will be the American public. That being said, Wall Street is looking for its usual handout, and given enough time Jerome Powell probably will do that. They are anticipating that it’s going to happen quicker than he is likely to do. Because of this, we will continue to hear this noise.

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I’m looking for an opportunity to fade this short-term bounce.

• The GBP/USD currency pair rallied a bit Monday to break above the 50-day EMA.
• The market looks very likely to continue seeing a little bit of upward pressure.
• We are getting rather close to the end of the range that we had been in, and it’s possible that we could see a little bit of resistance just above.
• The 1.24 level has been important more than once.

Fade the Rallies

The interest rates in America have been sliding, so that of course has a certain amount of negativity in the US dollar as well. Because of this, the British pound has gotten a little bit of a boost. That being said, there are still a lot of concerns out there and of course the English have their own issues as well. With this being the case, I think it’s more or less going to be a “fade the rally” type of situation. If we were to break down below the 1.21 level, then it’s likely that we drop down to the 1.20 level. The 1.20 level is an area that has been important more than once, so if we were to break down below there, it’s likely that the market then drops down to the 1.18 level.

The 1.18 level being broken to the downside would open up the possibility to see this market break down rather drastically. At that point, I would expect the British pound to go looking to the will .16 level, followed by the psychologically important 1.15 level. Anything below there would be a massive move just waiting to happen. I think we are more likely than not going to see a little bit of sideways back-and-forth action, but I don’t necessarily think that is going to be easy to break this market in general.

Keep an eye on the 10 year yield, because that has a lot to do with where we go next. As long as the 10-year yield doesn’t completely collapse, there will be a bit of fight left in the greenback. This will be especially true if we start to see people run towards the bond market for safety, which can change the overall attitude. Ultimately, I’m looking for an opportunity to fade this short-term bounce.

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This is a very noisy market like many others, but it does most certainly favor the US dollar.

The British pound broke down Monday to slice through the 1.19 level. However, we have also seen quite a bit of noisy behavior in this market, so I do think that the market might be a bit noisy and difficult at times. Keep in mind that the currency markets are all over the place due to the Federal Reserve and its tightening policy, so it does make sense that we would see the difficulty in grabbing a hold of the market.

At this point, I still believe it is a “fade the rallies” type of situation, so we need to pay close attention to the rallies on short-term charts, because as soon as we show signs of weakness, I am more than willing to start selling again. After all, it gives you the ability to pick up “cheap dollars”, which is like getting something on sale. After all, the US dollar is by far the strongest currency in the world for a reason. The Federal Reserve is much more aggressive than other central banks around the world, so it does make sense that we will continue to see the US dollar pick up momentum.

If we rally from here, the market is likely to see the 1.22 level as a major barrier to getting above, and until we do, it’s difficult to imagine a situation where you would be a “buy-and-hold” type of investor. That being said, the Federal Reserve does change its monetary policy, or if it looks like inflation is abating in the United States, then it’s possible that we could see an attempt to turn things around. However, it looks like we are getting much worse as far as the global economy is concerned, so I think that will continue to drive the value of the greenback higher.

The size of the candlestick is relatively long, and it is worth pointing out that we had made a “lower low” during the day but are seeing a bit of a pushback. Nonetheless, it’s likely that we will continue to drop to the 1.18 level, possibly even the 1.15 level after that. Ultimately, this is a very noisy market like many others, but it does most certainly favor the US dollar.

The US dollar will probably continue to strengthen.

The British pound initially slid against the US dollar Friday but has recovered quite nicely as you can see on the chart. The resulting candle is a hammer, suggesting that we may see a bit of a bounce in the short term. That being said, I would consider this more or less a relief rally than anything else. I suspect that the 1.22 level offers a bit of resistance above, as it has been both support and resistance recently, suggesting that there should be a significant amount of “market memory” in that area.

• While the market may rally for the next day or two, I will be looking for signs of weakness that I can start shorting again.
• I do not believe that this is the end of the trend, just that we had gotten a bit overdone.
• The 50-day EMA sits at the 1.2350 level and is sloping lower, offering a significant amount of dynamic resistance that we will have to pay close attention to.

If we were to break above there, then it’s likely that we could see even more momentum to reach the 1.26 level. At that point, you have to start to take a trend reversal as being a real threat.

Breaking Down from Last Week

The size of the candlestick is not overly impressive, because this is essentially a market that’s just hanging around the 1.20 level. If we were to break down below the lows of the week, that opens up fresh selling, but quite frankly I think a bounce is healthy because it gives you an opportunity to pick up “cheap US dollars.” Remember, you are looking at a relative value play here, so the US dollar is the desired currency, but if you can get it at a better price that’s always what you want to do.

It will break down below the lows last week, then I think we start to focus on the 1.18 level, and then eventually the 1.15 level where I would anticipate another big fight. We are at relatively low extremes at the moment, but this is a market that has to deal with rising interest rates in America, recessionary concerns around the world, and quite frankly just a lot of general angst, meaning that the US dollar will probably continue to strengthen.

At this point, it’s more likely than not going to be a situation where you are waiting for signs of exhaustion that you can start shorting.

The British pound has reversed quite massively during the trading session on Thursday, recapturing the 1.20 level as traders are now starting to focus on the jobs number coming out for the Friday session. At this point, the market is likely to see a lot of resistance, perhaps near the 1.22 level. This is an area that previously had seen a bit of selling pressure, and of course, we also have perhaps the possibility of a bit of short-covering causing the recovery.

At this point, it’s more likely than not going to be a situation where you are waiting for signs of exhaustion that you can start shorting, because the US dollar is extraordinarily strong, and should continue to be so going forward. Because of this, the market then will more than likely continue the longer-term downtrend, and once we get the jobs number out of the way one would think that there should be a bit of continuation.

If we were to turn around and break above the 1.22 level, then it’s possible that we could go looking to the 50 Day EMA which is at the 1.24 level, which is also an area where we have seen interest in both directions. In other words, there should be a bit of “market memory” at that level, which could cause some issues as well. At the very least we need to get above the 1.24 level to take any rally seriously. I do believe at this point we have a situation where the market is going to continue to see rallies sold into, but that might be a tall order heading into the jobs number. The real tell on where we are going next will probably show up at the end of the day on Friday, as by then people will show whether or not they are willing to hold British pounds or US dollars heading into the weekend.

The real trade probably shows up on Monday, because even if we were to turn around the entire trend, you have plenty of time to get involved. A trend change is a process, not something that happens immediately unless there’s some type of external factor. We do not have an external factor this point so patience will be key.

I do believe that ultimately we will have a situation that allows for bigger moves to the downside than up, so pay close attention, scale into your positions, and ride the waves lower. 

• The GBP/USD currency pair had a rough session on Wednesday as we are well below the 1.20 level.
• It ended up recovering a bit towards the end of the day, but we are so beaten down that it’s difficult to imagine that anybody with any sense at all would be a buyer.
• There could be short covering rallies at times, but those are going to be opportunities to get out.

At the first signs of exhaustion after a shorter rally, I anticipate that a lot of traders will come back into the market, especially near the 1.20 level, followed by the 1.22 level. The 50-day EMA continues to drop, and now it looks as if it is trying to break down below the 1.24 handle, meaning that it will offer dynamic resistance sooner or later. I think given enough time, we probably have a market that is willing to go much lower, with the possibility of 1.18 being targeted.

Breaking Down Below 1.18

If we were to break down below 1.18, then I would be looking at 1.15 before it’s all said and done. That being said, the market is a little oversold at this point so we are probably due for some type of bear market bounce. Nonetheless, if you are patient enough you should get an opportunity to pick up “cheap US dollars” at lower levels and take advantage of what has been a very strong and obvious trend. The market is one that you cannot fight right now, so standing on the sidelines and waiting to see how it all shakes out over the next couple of days is probably the best way forward. The British pound is struggling right along with other European currencies and economies, and as long as the Federal Reserve continues to be the tightest central bank out there, it makes quite a bit of sense that the US dollar will strengthen. I do believe that ultimately we will have a situation that allows for bigger moves to the downside than up, so pay close attention, scale into your positions, and ride the waves lower. If we were to break above the 1.26 level, then we could be talking about a trend change, but that is so far away I’m not even thinking about it right now.