GBP/USD Forecast December 22, 2011, Technical Analysis

GBP/USD has spiked on Wednesday to break above the all-important 1.57 level, only to fail and form a massive shooting star at this level. The 1.57 level has been the top of the most recent range in cable, and looks like it extends all the way up to the 1.58 level as the wicks on several daily candles seem to end there. With this in mind, we are suddenly very interested in shorting this pair.

The range has been from 1.57 to 1.55 for some time now, and this being the extreme top of that range, we feel shorting this pair on a break of the lows from Wednesday should be a very bearish signal in this pair. The 1.55 level is the start of a massive support level that goes all the way down to the 1.53 mark. With this in mind, and the fact that the end of the year brings low liquidity, it is hard to think that the breaking down in this pair would be anything more than a short-term trade. Of course, we could see a meltdown, but the truth is that the end of the year is a tough time to try and wide a new move.

The headline risks out there will continue to plague the cable as the Pound is very risk-sensitive. The current trend in cable is down, and this move would jive well with that analysis. The lack of major players in the market right now could produce quick whipsaws over the next several sessions, and we think that any profits that you have in this pair should be protected with at the very least with a break even stop loss. The pair should continue to be volatile as the news flow out of the EU should continue to push the markets around overall. The pair looks weak, but that support level will certainly end up being a real fight for the bears. A daily close below the 1.53 level should signal a massive move down, and to be honest – it is what we are truly looking for in order to place a long-term trade with serious conviction.