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The GBP/USD pair fell precipitously during the session on Tuesday as the "risk off" fell apart. The pair closed the session at the 1.60 level, but also closed the very bottom of the candle. This has is somewhat concerned, as this is a significant support level, but this pair is showing very significant weakness suddenly.
This may be predicated upon the fears of global growth, and the fact that in these particular types of circumstances the US dollar tends to be favored. The 1.60 level looks to be very important at this point time, but we think if it gives way the market will certainly search for the 1.58 level. This was the top of the ascending triangle over the course of the summer that cause this market the search much higher. Now we have to ask whether or not the 1.63 level was essentially the top. With all of the concerns out there, that very well could be the case although we are in theory very bullish of the British pound in general.
If we managed to get below the 1.58 level, we will start to test a serious support and at that point time we would have to consider buying again if we get the right candle. However, if this is predicated upon some type of area negative headlines, we could see continuation much lower prices before we know it.
With earnings season starting on Tuesday, it's possible that the risk appetite will wane in the United States, which of course would have it falling apart in the rest of the world as well. The Bank of England continues to hold still on its monetary policy, in this in theory should be good for the British pound. However, the US dollar is probably getting a bit despite the actions of the Federal Reserve, which of course wants to expand quantitative easing. Going forward, we think this pair is at a bit of a sea change, and as a result we need to pay serious attention to. Short-term, we think if we can break below the lows from the Tuesday session, 1.58 is a pretty tempting target.