• In my daily analysis of the GBP/USD pair, I recognize that the market initially tried to rally a bit, only to turn around and show signs of exhaustion.
• All things being equal, the 1.31 level underneath could be the first target underneath, and then breaking down below there we could see the market reaching toward 1.30 level, which of course is a large, round, psychologically significant figure.
• This is an area that previously had been massive resistance, and therefore I think it does make quite a bit of sense that we would see a bit of “market memory” out there.

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Keep in mind, the market is likely to see the a lot of volatility, as traders are going to be paying close attention to the Core PCE Price Index figures coming out on Friday, as the market is likely to continue to see the interest rates coming out of the Federal Reserve as the main driver of everything that matters in the currency markets right now.

Technical Analysis

The Relative Strength Index is pulling back from the overbought condition, and then we break down below the 70 level, showing that we are trying to get back to some type of normalcy. The question now is whether or not the PCE numbers on Friday will show that the Federal Reserve has to worry about inflation going forward, as it is the Federal Reserve’s main gauge of inflation, and that of course will have a major influence on what happens with monetary policy.

While I do believe that the British pound will serve falling from here, I don’t necessarily think that it will completely change the overall trend. After all, the market has been very overdone recently, and therefore I think we’ve got a situation where the market just simply needs to get back to some type of normal behavior as we got far too ahead of ourselves, especially as the Fed Funds Futures are pricing in a 100 basis point cut between now and the end of the year, something that quite frankly would be disastrous.

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