GBP/USD Forecast May 16, 2012, Technical Analysis

The GBP/USD pair fell very hard on Tuesday to slam into the 1.60 level. The area was the site of a breakout last month, and should therefore be supportive now. However, the price action is very bearish, and the fact that the pair closed at the very bottom of the daily range is not a good sign.

The 1.60 level should be supportive all the way down to the 1.59 handle. Because of this, we are waiting for a daily close sub-1.59 to consider the support broken, and are simply going to be patient and wait for our question of direction to be answered. The level will attract many traders, so the move over the next couple of sessions should have somewhat long lasting effects.

Cable is a risk-related currency pair, and as long as the markets in general are somewhat risk averse, there could be pressure in this market. Lately, we haven’t seen this correlation though, and because of this the Pound has enjoyed a bit of supportive action while the Euro and other riskier currencies like the Aussie and Kiwi dollars have been sold off. However, it looks as if the market is now coming after the Pound.

The British send over 40% of their exports into the European Union, and it could be detrimental to the British economy as the EU is so financially weak at the moment. After all, the British may sudden find that their number one customer is broke – never a good thing.

The 200 day exponential moving average is still below the current price and is part of why we are interested in seeing how the 1.59 level holds up as support. The breaking below of the 200 day EMA is a very bearish sign in our opinion. The markets should continue to be risk adverse, and as a result we aren’t interested in buying this market at the moment, rather we are interested in selling if we get that sub-1.59 close. The momentum from the session on Tuesday certainly suggests that we could see it happen.

GBP/USD Forecast May 16, 2012, Technical Analysis

Written by FX Empire