GBP/USD Forecast December 14, 2011, Technical Analysis

GBP/USD fell hard on Tuesday as the world continues to run to the US dollar. The pair is fairly sensitive to the global risk appetite, and as the world reenters the “risk off” trade again, it makes sense that the cable pair would fall.

The economy in Great Britain is highly tied into the European Union, and as that area continues to have major problems, it makes sense that the Pound will feel the aftereffects of the issues at hand. When you send 30% of your exports to an area that is going into recession, you are going to feel it sooner or later. Also, the UK economy itself isn’t exactly firing on all cylinders either. The US is a safety play, and as a result – this pair will go down in times like this. While there are certainly worse currencies to own, the Pound should still fall.

The 1.55 level is the start of a massive support level that runs all the way down to the 1.53 area. The level represents the last stand of the bulls in this pair, and if it gives way we would pile in hard on the short side of this trade. However, we haven’t broken below that level yet, and as a result we aren’t advocating a sell of this pair at this level. The rallies will more than likely be the areas to sell from, as they continue to be selling opportunities in general. With this in mind, we are willing to wait in this pair.

Of course, if we get that breakdown below 1.53 – we are willing to sell immediately. The pair would also be signaling a longer-term head and shoulders break at that point, and 1.40 could be seen as a result. The pair looks weak, and because of this we simply cannot buy it right now. It isn’t a problem with the UK itself, rather the company it keeps. Selling of rallies and a break below 1.53 are our strategies in this pair until the EU crisis can calm down and give the riskier assets some relief.