• The GBP/USD rallied significantly during the trading session on Tuesday, as we reached above the 1.15 level.
• However, there is a downtrend line just above that traders have been paying attention to for a while, so it is interesting to see if we do in fact hang onto that downtrend line.
• If we do respect it, then we could test the 50-Day EMA underneath, which is at the bottom of the candlestick for the trading session.

Breaking down below the bottom of the candlestick for the day opens the possibility of a move much lower, as it would continue the overall downtrend in the British pound against the US dollar. The 1.11 level underneath is the beginning of significant support that extends down to the 1.10 level, which of course is a large, round, psychologically significant figure, and an area that we had seen offer support previously. Because of this, think it’s probably only a matter of time before we would see some type of fight in that area. However, if we were to break down below there then it’s likely that the British pound really starts to fall apart, going down to the 1.05 level.
 

Demand for Dollar Likely to Increase

There are concerns about a global liquidity squeeze, which is a very pro-US dollar because that mom most of the time means that people are looking for dollars. Looking at this chart, we have had a nice rally for a while, but when you look at the longer-term chart, it is but a blip on the radar. I think it’s more likely than not we are going to continue to see demand for greenbacks, but I also recognize that if we break above the 1.17 level then it would be a very bullish site, something that you cannot argue with, at least in the short term.

At that point, I would anticipate that the British pound could go all the way to the 200-Day EMA, which is right above the 1.20 level. Obviously, that would be a very strong turn of events, but it’s not until we break above the 200-Day EMA that you have a “technical uptrend” forming. In the meantime, I think there are a lot of problems in the United Kingdom, so it’s very difficult to get bullish, even though we have seen a nice bounce.

(Click on image to enlarge)

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