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The GBP/USD pair fell hard on Friday, as the “risk off” trade came rushing back into the markets. The change in attitude saw the Dollar reign during the day, and as such we are not willing to go against it.
We have been looking at the 1.57 level as the start of serious resistance, going all the way to the 1.58 level. The area seems to be very strong as resistance, and although we have seen a lot of strength lately, the Friday session seems to have shown how much underlying nerves in the markets as well. This suggests to us that the US dollar should continue to gain in value.
The summer time will of course have an effect on this pair as well, and because of this we don’t necessarily think that the pair will meltdown. The support from the previous consolidation should keep this pair above the 1.5250 level. The hammers form earlier in the week should continue to support as well, so we could see a struggle to get lower, and anyone looking to sell at this point must be comfortable with this as well.
The breaking of the hammers low end of the range would of course be a very bearish sign, and the sellers should really step up once we are sub-1.55 as the weakness would become more and more obvious. The Pound has been lifted lately, and as a result we aren’t necessarily selling the Pound, but buying the Dollar in this circumstance.
The 1.5250 level will more than likely hold until we see the end of summer, as the volumes and big players simply aren’t at their desks, and because of this we feel this is a trade – not a longer leg down. Of course, we have to acknowledge the possibility of a break to the upside, and we see that as a buy signal on a daily close above the 1.58 level, and not before. The recent action had been very bullish, but the overall attitude of the markets globally on Friday shows just how weak a lot of risk assets are just under the surface.