The GBP/USD pair shot straight up on Wednesday as traders took on more risk for the session. However, the pair is currently at the bottom of a massive consolidation pattern from just a couple of session back, and will find the 1.55 level to be very resistive. Because of this, we actually prefer the downside at the moment, but will have to wait in order to see if we get that signal.
The pair did manage to break over the shooting star formed on Tuesday, and this is a very bullish sign. With that being said, it looks like the market will just now be looking at serious resistance, and the area just above could be a real fight. Because of this, we cannot buy this pair.
Also, we have to take into account that the British economy will continue to suffer because of the issues in the EU. The European Union will be going into recession this year, and as the Brits sell 40% of their exports to that area, this will certainly have a detrimental effect on the health of the UK economy. Adding to this concern is that fact that the UK banks are all knee-deep in the EU mess, and this will certainly cause pain at home as well.
The US on the other hand is seeing expansion, and this should continue to keep the Dollar attractive in comparison. While this pair is normally a “risk on” pair, the truth is that relationship may decouple for a while as the true fundamentals actually favor the US dollar for once.
Looking at the charts, we need to see a breakout above the 1.58 level to be wholly convinced of the upside potential, and will be looking for selling opportunities between here and there. The breakdown below the 1.53 level would be massive as it would be the longer-term head and shoulders giving way for a move down to the 1.40 level or so. With this in mind, we like selling rallies going forward, and would become very aggressive sub-1.53.