The GBP/USD pair initially tried to rally during the course of the day on Monday, but turned back around to form a bit of a shooting star. The shooting star sits just above the 1.45 handle though, so this point in time we are not quite ready to start selling. A break down below the 1.45 level does trigger more selling in our opinion though, and we will not hesitate to do so. On the other hand, a break above the top of the shooting star would be a very bullish sign, but we believe that it will be short-term at best. If we break higher, we will simply wait for an exhaustive candle at higher levels in order to start selling yet again. At this point in time, the US dollar is without a doubt the strongest currency in the world, and the British pound has been struggling in general lately.
Keep in mind that the GDP estimate numbers come out during the day from the United Kingdom, and that can have a great influence on this pair as well. All things being equal, we believe that the US dollar will continue to strengthen for the meantime, and that of course will put pressure on other currencies around the world.
Rallies at this point in time will have to contend with the 1.48 level above, and possibly even the 1.47 level. Is because of this that we look at any break out to the upside as an opportunity to take advantage of temporary value in the greenback itself.
If we break down below the 1.45 level, we feel that the market should then go to the 1.43 level, and then possibly the 1.40 level below. Quite frankly, it’s not until we break above the 1.50 level that we feel serious pressure to the upside will return to this market, and the way things are looking for the beginning of January, it seems like it is still more “risk off” type of trading continuing from the end of the year, and that of course will continue to put buying pressure in favor of the US dollar.