The GBP/USD pair fell during most of the Thursday session in order to break down below recent support. The 1.55 level has been taken out at this point, and it does suggest to us that this pair will continue to grind lower.
The pair didn’t stop at the 1.54 level, which of course is the top of a hammer that signified the lows in this market back at the end of the month of May. This hammer should be a sign of support in this particular area, so the fact that the market bounce slightly isn’t a major surprise. However, looking at the bigger picture this certainly suggests that we are going lower, even if it will be a bit of a struggle in the short term.
We still maintain that the 1.5250 level is where this pair is going to eventually run into, and as such we are willing to sell rallies as they come now based upon week and resistive candles on the shorter time frame charts such as the four-hour or even hourly charts.
As for buying, we need to see some type of relief supportive candle and a fundamental change in the European situation to be tempted. The Bank of England looks more and more likely to continue easing over the intermediate term, and this should continue to erode the value of the British pound. This in fact will be something London is looking to do, as the flood of money coming out of the continent and into the United Kingdom has driven the value of the Pound higher than it really should be.
If we can break down below the 1.2550 level on a daily close, we suspect that the 1.50 level and then the 1.45 level will be targeted. This is a very bearish call, but quite frankly this is a risk sensitive currency pair. This means that as headline shocks come out, people will be selling the Pound, and buying the US dollar as a safety trade. This isn’t so much an indictment on the British pound itself, rather a symptom of the extreme US dollar buying.
Written by FX Empire