GBP/USD forecast for the week of December 7, 2015, Technical Analysis

The GBP/USD pair initially broke down during the course of the week, driving well below the 1.50 level. This of course is a psychologically significant number, so it would attract quite a bit of attention. Having said that, we turned back around to form a bit of a hammer and it now looks as if the British pound will continue to trying to gain value. If we can break above the top of the hammer, the market will try as hard as possible to break above the 1.52 level, and more importantly the hammer from 2 weeks ago.

On the other hand, if we break down below the bottom of the hammer that is a very negative sign and the market should then reach towards the 1.45 handle. The US dollar had been strengthening overall due to the fact that the Federal Reserve will probably have to raise interest rates this next meeting, and perhaps even the next one after that. We got a little bit of a “knee-jerk reaction” against the US dollar as the European Central Bank did not add as much stimulus as once anticipated. This had a bit of a “knock on effect” in this market, and of course brought the value of the British pound up.

The one thing that you can count on in this market is probably going to be volatility. Given enough time, the markets will eventually make a steady decision, but in the meantime we have our levels and we are paying attention to in order to place longer-term trades. The volatility will be difficult to deal with, but given enough time it should provide us with a nice trading opportunity.

We believe that the actual “floor” in the market is closer to the 1.45 level, so we could get a rally and then a continued downward move. If we break above the top of the shooting star from 2 weeks ago though, at that point in time we think the market probably reaches towards the 1.550 level, and then the 1.58 handle.