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GBP/USD Price Forecast – British pound gets relief rally

By:
Christopher Lewis
Updated: Dec 31, 2018, 16:03 UTC

The British pound traders rallied the market during the trading session on Monday, breaking through the 1.27 level, and then eventually the 50 day EMA. While this is impressive, it also is a bit misleading from what I see.

GBP/USD daily chart, January 02, 2019

The British pound broke higher during the trading session on Monday, perhaps due to year-end short covering as we have fallen so hard. At this point though, illiquidity would have come into the picture, and the phenomenon that large funds will close out positions in order to distribute profits to clients and mark the books for the year. I think at best, this is probably going to be a selling opportunity although I admit that it is breaking a bit of technical resistance.

GBP/USD Video 02.01.19

Regardless, the Brexit hasn’t been settled and we seem to be light years away from doing so. With that in mind, I feel that it’s only a matter of time before some type of problem creeps up, and that could be reason enough to start selling again. We reached the 1.28 level where we found a little bit of selling pressure, as one would expect. If we do clear this area, we could go as high as the 200 day EMA before rolling over. However, I do not expect that to happen and it is most certainly not my base case scenario. Ultimately, I like the idea of fading rallies that show signs of exhaustion, something that we should get rather quickly here as none of the major drags upon the British pound have gone anywhere. Ultimately, this is a market that could extend its losses going into the next year, reaching down to the 1.22 handle. I have no interest in buying until we get a break above the 200 day EMA.

About the Author

Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.

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