The GBP/USD pair rose slightly during the session on Monday, but found the 1.68 level resistive. This was an area of support previously, so the fact that we did not break above there is in fact interesting. We been in a pretty significant downtrend for five or six weeks now, and as a result we feel that the market needs to bounce sooner or later, and a trend change on the shorter-term needs to happen or the longer-term uptrend could be done with.
On a daily close above the 1.68 level, we believe that this market will try to get to the 1.69 handle, and a move above there makes the 1.70 level the next target. The truth is that it is probably going to be difficult to make that move in the short-term, but ultimately we will have to wait and see if we can build up enough momentum to make that happen.
On the downside, if we continue to break lower we believe that this market will then head to the 1.65 handle, as it is a large, round, psychologically significant number that has shown itself to be both supportive and resistive in the past. Because of that, we are still on the fence as it were, but recognize we are at a fairly significant inflection point. On a fresh new low, we would be willing to sell this market as it should continue to show bearish pressure to the downside, but recognize any move higher is going to be very difficult to achieve and therefore would limit the size of our long positions.
Ultimately, we believe that this market has pullback about as far as it should, but at the end of the day you believe in what happens are quite often two totally different things. With that, we recognize that caution is needed, but quite frankly at the end of the day we may find that trading the British pound against other currencies might be a bit easier as a US dollars so favored at the moment in this market.
