GBP/USD fell during the session on Monday as the markets went into the “risk off” trade. The Pound does enjoy support at the 1.55 level, and the bounce during the later hours of the session on Monday show this by forming a hammer for the daily candle.
The UK is simply far too exposed to the European Union for us to feel comfortable owning it for any real length of time. The Dollar is strong around the markets, and as a result we aren’t very keen to sell it. This means that we will only sell this pair, but the fact that it is sitting on a massive support zone keeps us out of this pair currently. The support area starts at 1.55, and goes down to the 1.53 handle. The area being broken would have serious ramifications for the strength of this pair.
The 1.53 level being closed below on the daily chart would be a breakdown of a massive head and shoulders pattern that measures down to the 1.41 level. The pair is going to face pressure going forward as the headlines out of Europe fail to relieve nerves for traders around the world. The UK banks unfortunately are going to be heavily exposed to the EU debt crisis, and the EU makes up over 30% of British exports. Both of these factors are going to weight on the strength of the UK economy, and by extension – the Pound itself.
The pair has enjoyed a bounce over the last several months, but the downtrend does seem to be continuing. Because of this, we are selling only, and will certainly do so hand over fist if we do get below the 1.53 level. The Pound should continue to suffer at the hands of the buying of US Treasuries, which are presently enjoying some of the largest bid-to-cover ratios in history. The Pound, while still a viable currency overall, is going to play second fiddle to the Dollar for the foreseeable future as the world simply is far too risk-adverse at this point to buy.
Written by FX Empire