GBP/USD Forecast December 29, 2011, Technical Analysis

GBP/USD fell rapidly during the Wednesday session as traders took off risk all the way around. The recent range between 1.54 and 1.58 has contained cable quite well, but the overall move over the last couple of months has been down. The daily candle is closing at the bottom of the range, and this suggests real pressure to the downside. In this low volume environment, it is quite possible that the traders that are involved may simply be taking advantage of the low liquidity.

The support area goes all the way down to 1.53, and it isn’t until that level is broken on a daily close do we get excited about the shorting of this market. The pair is certainly risk sensitive, and the “risk off” trade will push this pair lower as well. The pair is also forming a massive “head and shoulders” on the larger time frames, and a breaking of the 1.53 level would signal that the market should fall roughly 1, 000 pips. The move wouldn’t be all at once, but it could show where cable may be heading for the first several months of 2012.

The Bank of England has been working quietly to bring down the value of the Pound, and with the world being cautious about several different things; this pair is gaining momentum to the downside. However, we are still waiting to see if the 1.53 level can give way.

The upside is a tricky situation for traders. While we are sitting on top of the support level, the 1.58 level seems to be far too strong for this pair to get above. Also, with the Bank of England working against the Pound, and the world economies slowing down – it’s hard to own anything but the US dollar. In an environment like this, traders will run to the Dollar as the fear rises, and with that in mind, we are simply going to wait for a daily close sub-1.53 in order to sell this pair. The upside would have to be made if we closed above the 1.58 level, which looks very unlikely.