The GBP/USD pair broke down significantly during the session on Tuesday, slicing through the 1.55 handle. This was an area that we had suggested as being massively supportive, so now that we have broken down below it, it appears that there is more downward pressure than originally thought. With that, we believe that the market will probably head towards the 1.53 level, and then eventually the 1.52 level. That area should be supportive as well, so we need to keep an eye on potential buying opportunities in that area.
A supportive candle below of course would be an opportunity to start buying again, but we also recognize that the markets will probably be volatile due to US dollar strength in general, as the European Union continues to bounce around due to the Greek situation. Ultimately, we do like the British pound as long as we can stay above the 1.52 handle, but having said that we do recognize that the next few sessions could be rather difficult on anything that is not the US dollar.
All things being equal though, if we can break above the 1.55 level, we believe that the market will then head towards the 1.57 handle, and possibly the 1.58 handle above there. We believe that the market will attract buyers every time it dips once we do break out to the upside, and we still believe that there’s plenty of time for the British pound to strengthen but recognize that as long as there are a lot of concerns coming out of Athens, people will probably try to avoid anything that isn’t related to the United States, or perhaps something to do with safety such as the Swiss franc.
On the short-term though, if we break down below the lows of the session, we would be short-term sellers. We would keep a small position though, simply because we believe in the longer-term uptrend. However, the one thing that you can count on is a significant amount of volatility as the markets are literally moving every time there’s a new headline.