Is this the end of the party for the Pound lovers?
Skerdian Meta • 2 min read
After a handful of very disappointing economic data from the UK following the Brexit vote, we have seen some improvement and some promising data recently. That has given the GBP a little time to breathe after the 20 cent decline and GBP/USD has managed to rally to 1.340s yesterday, helped by the disappointing US economic data.
If you have read our recent market updates and the daily/weekly articles posted by me and my colleague Eric, then you must have noticed that we have been pointing at this level on this forex pair as a good entry point for a long term sell forex signal. It offers some good risk/reward ratio as well. That has been the case until yesterday, but the situation has changed a bit.
FED´s Yellen gave the forex market a hint for a possible interest rate hike a couple of weeks ago, but since then the US economic data has missed the expectations time after time. The massive drop in the non-manufacturing numbers yesterday was probably the final nail in the coffin for a September rate hike.
Is the rally over in GBP/USD or should we wait until the price reaches 1.3550-1.36?
So, the 1.3440 level looked like a good entry point for a long term sell signal in GBP/USD, but the US economic data has deteriorated and the UK data has shown a lot of improvement since mid August. What if the BOE (Bank of England) lays off the dovish stance until they gain further evidence? What if the FED falls back on its bottom again and postpones the rate hike once more, which is very likely?
The technical analysis signals a sell forex trade, but there are quite a few "what if´s" in the fundamental analysis. This is the nature of forex, what seemed like a great trade a few days ago might turn out to be a big mistake a few days later. If both the fundamental scenarios go against the Buck and some important resistance levels get breached, then we might see a short squeeze. The sellers of this forex pair will panic, which will force them to close their sell forex trades. That might turn into a growing snowball and push GBP/USD much higher.