Pound Pulls Back As Recession Looms

Ultimately, this is a market that I think is binary at this moment in time, meaning that you are either buying or selling dollars, and most other Forex trades out there are not worth being bothered with.

The GBP/USD currency pair has pulled back a bit during the training session as the US dollar has picked up a bit of strength. After all, the United States has entered a recession, and now people are very cautious about the growth prospects, there is now a “push/pull” type of market, as we are trying to figure out whether or not the Federal Reserve will continue to tighten monetary policy, despite the fact that GDP is shrinking. That being said, there is a lot of concern out there that traders are trying to figure out whether or not they should be buying bonds.

Regardless, we are in a downtrend on the longer-term charts, and we are now sitting just below the 50 Day EMA, and I think that has a huge influence on where we go next. The 1.20 level underneath is an area that I think a lot of people will pay close attention to, due to the fact that it is a large, round, psychologically significant figure. That’s an area that will be very noisy, but I think if we break down below there then the bottom will fall out in the British pound. At that point, I would anticipate that the market goes down to the 1.18 level, and then maybe even lower than that.

On the other income if we break above the 50 Day EMA, then it’s possible that the British pound will go looking to reach the 1.24 level. The 1.24 level is resistance that extends all the way up to the 1.25 level, possibly even the 1.26 level. This is a major area to overcome, and if we did it would completely change the overall trend. I don’t see that happening, but it is something that is possible.

If we were to see a breakout to the upside, it would probably be something that you pay close attention to the US dollar in general, due to the fact that the US dollar is the strongest currency out there. Ultimately, this is a market that I think is binary at this moment in time, meaning that you are either buying or selling dollars, and most other Forex trades out there are not worth being bothered with. The Federal Reserve is still very much in play overall, and therefore you need to pay attention to US economic figures.

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