Potential Signal:
I am selling the GBP/USD pair at 1.3350 level, with a stop loss at 1.3420 and a target of 1.32
- The British pound showed early strength but faces heavy resistance near 1.35, with downside risks growing below the 50-day EMA.
- While longer-term support exists, the outlook remains cautious and favors selling rallies.
British Pound initially rallied on Wednesday to show signs of strength, but the 1.35 level is a large, psychologically significant figure that a lot of people will be watching. The 1.35 level is a significant area that will have to be watched very closely. Ultimately, the 50-day EMA underneath is going to offer a certain amount of support.
If we break down below there, we will likely go looking to the 1.33 level. The 1.33 level and the 200-day EMA coinciding in the same place does make it an interesting target. The British pound doesn’t look quite right against the US dollar, and it does look like it’s ready to roll over a bit. There is a lot of noise just below where we are, and that’s something that has to be paid close attention to.
Rate Policy and Relative Performance Context
The British pound will more likely than not outperform many of the other currencies out there against the US dollar, and the Bank of England, although it did just cut rates by 25 basis points, is very slow to cut rates, and it could take a while for things to really kick off. With this, the idea of fading this pair every time it rallies is appealing, but not with expectations for huge moves in the short term.
If we were to break above the 1.36 level, then it could open up a much bigger move, perhaps to the 1.3750 level. That is very difficult to make happen, especially after the price action seen over the last couple of weeks. The outlook remains suspicious of the British pound, and interest would be in getting short of this pair if we break the 50-day EMA.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
