The GBP/USD pair initially fell during the course of the session on Monday, but found enough support at the 1.48 level to turn things back around and form a hammer. Because of this, looks like the British pound will test the 1.50 level, but we recognize there could be a bit of resistance in that area as well. Quite frankly, the market looks as if it is going to try to break out to the upside, but there is still a significant cluster of resistance all the way to the 1.52 level so we are much more comfortable shorting some type of negative signal if we get it. In the meantime, we feel that it is probably going to be easier to simply sit on the sidelines of this market as we are going against quite a bit of massive downward pressure.
Adding to the volatility and the uncertainty will be the fact that the CPI numbers come out from both the United States and the United Kingdom today. In other words, we believe that this market will react to the British CPI numbers early, and then of course react to the US CPI numbers later. In other words we could have a bit of a huge back and forth type of situation.
From a technical standpoint, if we can break below the 1.48 level significantly, we are very bearish once that happens. At that point time, we feel that the 1.45 level of course would be the target. On the other hand, any type of movement between here and there will be fairly difficult. On the other hand, we believe that the market should continue to be very volatile as there are a lot of moving pieces in this general vicinity. If we can break above the 1.52 level though, we should then head to the 1.55 handle. Expect a lot of back and forth and jerky momentum, which of course is going to make this a very difficult market to trade, but we also recognize that sooner or later we are going to see a significant move that could lead to a longer-term move that we can profit from.