The GBP/USD pair broke down during the course of the day on Wednesday, slicing through the 1.50 level finally. This is a massive support level on the longer-term charts, and of course a large, round, psychologically significant number. Because of this, it appears that the market will continue to be attracted to that level, but now it appears that we are really starting to dig into the support zone that the market has been playing against for some time. We believe that the market should continue to try to break down below the 1.48 handle, and given enough time, it certainly will. Once that happens, the British pound should fall apart and head directly to the 1.45 level. That of course is the next large round number, and it is also a supportive level on the longer-term charts.
Because of the large candle for the session, we believe that there could be a bit of follow-through coming, and as a result we are more than willing to sell this market now. We recognize that it could be a very difficult market to deal with, and that there could be a lot of volatility between here and the 1.48 handle, but ultimately we are in a downtrend. With that, it’s only a matter of time before we break down even lower, and perhaps in the markets looking for even lower levels over the longer term. Remember, the US dollar is the strongest currency in the world right now, and it’s difficult to imagine going against it, especially with a currency that is tied to an economy that is so closely related to the European Union. Remember, the European Union is by far the largest trading partner of the United Kingdom, and as a result the UK will suffer as the European Union tries to figure out what to do next. We ultimately believe that this market breaks down to the 1.45 level, and possibly even lower than that. Rallies are to be thought of as value in the US dollar and sold on the first sign of weakness.