GBP/USD Forecast Video for 28.08.23

British Pound vs US Dollar Technical Analysis

The British pound has initially fallen during the trading session on Friday, but found enough support above the major trend line that it looks like we are ready to try to turn things around. The question of course is how are the markets going to react to the Jackson Hole Symposium speeches, but right now it looks like those who are bullish of the British pound are not ready to give up. If that’s going to be the case, this could very well end up being a nice buying opportunity.

That being said, if we were to break down below the 200-Day EMA, then the bottom good fallout of this market. In that scenario, then I think we go to the 1.2350 level rather quickly, and then possibly down to the 1.20 level. I suspect that the market is going to continue to be very noisy regardless, as there are so many questions about what’s going on around the world. The Bank of England has recently seen some rather negative numbers to look at, but at the end of the day, inflation is still a problem and there’s nothing to suggest that the Bank of England is going to change its tune in the short term. In other words, they will probably be every bit as hawkish as the Federal Reserve.

However, Jerome Powell could shake the markets up, so be advised that massive volatility could very well be the norm over the next couple of weeks. I think at this point, you need to look at this through the prism of trying to protect your account and keep small positions on. Furthermore, we are at the end of summer, so one has to wonder how much volume there really is out there, so some of the moves might be a bit exaggerated.

On the upside, if we can break above the 50-Day EMA, the market is likely to look into the 1.2850 level. Anything after that opens out the possibility of a move to the 1.30 level, an area that has been important in a couple of times in the past and of course as a certain amount of psychology attached to it.

Story continues

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD began the week on the back foot, slipping below support at 1.0635 and hitting its lowest level since early November of last year, with losses now exceeding 2.4% from April’s swing high. Confirmation of Monday’s breakdown in the coming days may accelerate selling momentum, potentially paving the way for a descent toward the 2023 lows at 1.0450.

On the other hand, if EUR/USD orchestrates a comeback and reclaims the 1.0635 threshold, resistance can be spotted near the 1.0700 psychological mark. On further strength, the focus will be on 1.0725. Bears must vigorously uphold this technical ceiling; any failure to do so might ignite a rally towards the 50-day and 200-day simple moving averages, hovering near 1.0820.

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USD/JPY FORECAST – TECHNICAL ANALYSIS

USD/JPY soared on Monday, climbing past the 152.00 handle and hitting its highest level since June 1990, buoyed by rising U.S. Treasury yields. With bulls in control of the market, we could soon see a move towards channel resistance at 155.80; but gains could be temporary, as the Japanese government could step in to support the yen on a decisive break above the 155.00 threshold.

Conversely, if bulls start taking profits on their long positions and USD/JPY pivots to the downside, support materializes at 153.20 and 152.00 thereafter. Prices could stabilize around this technical floor during a pullback, but in the event of a breakdown, bears could set their sights on 150.80, followed by 150.50, the 50-day simple moving average.

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD experienced a slight decline on Monday but maintained its position above support at 1.2435. To bolster sentiment towards the pound, it’s essential for this technical floor to remain intact; failure to prevent a breakdown could result in a pullback towards 1.2325. On further weakness, bears may feel emboldened to initiate an attack on the October 2023 lows around 1.2040.

On the flip side, if sentiment shifts back in favor of buyers and cable manages to mount a bullish reversal, primary resistance emerges at 1.2525. Above this area, attention will be on the 200-day simple moving average at 1.2580, followed by 1.2650, where the 50-day simple moving average intersects with two important short-term trendlines.

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• EUR/USD dropped to fresh YTD lows near 1.0620.
• The US Dollar accelerated its gains amidst higher yields.
• The ECB’s Simkus favoured 50 bps of rate cuts in the summer.

For the fifth consecutive session, EUR/USD remained under pressure, sliding to levels around the 1.0620 zone and reaching new 2024 lows amidst continued strength in the US Dollar (USD).

This upward momentum in the Dollar coincided with investors re-evaluating the timing of a potential rate cut, likely to occur later than previously expected, possibly in December. This reassessment occurred alongside another increase in US yields across the curve and a firmer narrative regarding the divergence of monetary policy between the Federal Reserve (Fed) and the rest of its G10 peers, especially the European Central Bank (ECB).

Once again, another surge in the Greenback led the USD Index (DXY) to achieve fresh year-to-date highs past the 106.00 barrier, underpinned by recent higher-than-expected US inflation figures as measured by the CPI in March.

Meanwhile, the ECB meeting brought no surprises last week, with the central bank leaving its rates unchanged as widely anticipated. However, there were clearer indications that the ECB might be considering a rate cut, especially given the ongoing decline in eurozone inflation.

Still around the ECB, Board member Simkus suggested earlier in the session a potential extra rate cut in July, leaving 50 bps of rate reductions in place over the summer.

Looking ahead, the relatively subdued economic fundamentals in the eurozone, coupled with the resilience of the US economy, reinforce the expectation of a stronger Dollar in the medium term, particularly considering the possibility of the ECB lowering rates before the Fed. In such a scenario, EUR/USD is anticipated to experience a more pronounced decline from a short-term perspective.

EUR/USD daily chart

EUR/USD short-term technical outlook

The breakdown of the 2024 low of 1.0621 (April 15) could put a probable visit to the November 2023 low of 1.0516 (November 1) back on the radar prior to the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round milestone of 1.0400.

On the upside, EUR/USD is projected to find early resistance at the key 200-day SMA of 1.0827, ahead of the April top of 1.0885 (April 9), followed by the March peak of 1.0981 (March 8) and the weekly high of 1.0998 (January 11), all preceding the psychological barrier of 1.1000. Further advances from here could challenge the December 2023 top of 1.1139 (December 28).

The 4-hour chart shows that the bearish trend appears intact for the time being. Against that, the initial support arrives at 1.0621 seconded by 1.0516. In the other direction, there is initial up-barrier at 1.0716, ahead of the 55-SMA at 1.0780 and the 100-SMA at 1.0790. The Moving Average Convergence Divergence (MACD) fell further into the negative zone, while the Relative Strength Index (RSI) slid to around 23.

• EUR/USD dropped to fresh YTD lows near 1.0620.
• The US Dollar accelerated its gains amidst higher yields.
• The ECB’s Simkus favoured 50 bps of rate cuts in the summer.

For the fifth consecutive session, EUR/USD remained under pressure, sliding to levels around the 1.0620 zone and reaching new 2024 lows amidst continued strength in the US Dollar (USD).

This upward momentum in the Dollar coincided with investors re-evaluating the timing of a potential rate cut, likely to occur later than previously expected, possibly in December. This reassessment occurred alongside another increase in US yields across the curve and a firmer narrative regarding the divergence of monetary policy between the Federal Reserve (Fed) and the rest of its G10 peers, especially the European Central Bank (ECB).

Once again, another surge in the Greenback led the USD Index (DXY) to achieve fresh year-to-date highs past the 106.00 barrier, underpinned by recent higher-than-expected US inflation figures as measured by the CPI in March.

Meanwhile, the ECB meeting brought no surprises last week, with the central bank leaving its rates unchanged as widely anticipated. However, there were clearer indications that the ECB might be considering a rate cut, especially given the ongoing decline in eurozone inflation.

Still around the ECB, Board member Simkus suggested earlier in the session a potential extra rate cut in July, leaving 50 bps of rate reductions in place over the summer.

Looking ahead, the relatively subdued economic fundamentals in the eurozone, coupled with the resilience of the US economy, reinforce the expectation of a stronger Dollar in the medium term, particularly considering the possibility of the ECB lowering rates before the Fed. In such a scenario, EUR/USD is anticipated to experience a more pronounced decline from a short-term perspective.

EUR/USD daily chart

EUR/USD short-term technical outlook

The breakdown of the 2024 low of 1.0621 (April 15) could put a probable visit to the November 2023 low of 1.0516 (November 1) back on the radar prior to the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round milestone of 1.0400.

On the upside, EUR/USD is projected to find early resistance at the key 200-day SMA of 1.0827, ahead of the April top of 1.0885 (April 9), followed by the March peak of 1.0981 (March 8) and the weekly high of 1.0998 (January 11), all preceding the psychological barrier of 1.1000. Further advances from here could challenge the December 2023 top of 1.1139 (December 28).

The 4-hour chart shows that the bearish trend appears intact for the time being. Against that, the initial support arrives at 1.0621 seconded by 1.0516. In the other direction, there is initial up-barrier at 1.0716, ahead of the 55-SMA at 1.0780 and the 100-SMA at 1.0790. The Moving Average Convergence Divergence (MACD) fell further into the negative zone, while the Relative Strength Index (RSI) slid to around 23.

• The GBP/USD continued its decline last week as the US Dollar Index (DXY) gained strength.
• It fell to a support level of 1.2426, its lowest level since November last year, as hopes for quick rate cuts by the Federal Reserve faded.
• It started trading this week around the 1.2440 support.
• In general, the GBP/USD joined other major currencies in a significant decline last week after a series of strong US economic data.

According to the results of the economic calendar data, a report from the Bureau of Labor Statistics (BLS) showed that the US economy managed to create more than 300,000 jobs in March while the country’s unemployment rate fell to 3.8%. A separate report showed that inflation in the country continued to rise in March. The headline CPI jumped to 3.5% while core inflation rose to 3.8%. There is a possibility that inflation will continue to rise this month as gasoline prices remain high. Obviously, the escalating crisis in the Middle East will further exacerbate the situation. These two figures are of great importance because jobs and inflation are part of the Federal Reserve’s dual mandate. Consequently, there is a possibility that the Fed will not implement the rate cuts it had planned in previous meetings. A look at CME data shows that most economists do not expect a rate cut in June as they had previously expected.

Looking ahead, GBP/USD pair will react to a number of important economic data from the UK this week. The Office for National Statistics (ONS) will publish the latest employment figures on Tuesday. More importantly, it will publish consumer and producer inflation figures for March. Economists expect the UK CPI to fall from 3.4% to 3.1% on an annual basis. Core inflation is expected to move to 4.1%.

Generally, there are signs that inflation in Britain will continue to decline as energy prices fall. A report published last week showed that energy prices will fall more than previously expected. Wholesale prices will fall to £82 per megawatt-hour this year, 27% lower than forecast. Therefore, if this trend continues, the Bank of England will likely start cutting interest rates earlier than the US Federal Reserve.

Overall, this is largely the story of the US dollar: we see the dollar strengthening its position as the best-performing currency in 2024, supported by fading hopes for an interest rate hike by the Federal Reserve amid rising US inflation and a resilient labor market. The strength of the US economy highlights the continuing disparity in wealth between the Eurozone and Britain, where the process of lower inflation remains intact due to slowing economic activity and easing labor market conditions. For its part, the European Central Bank indicated last Thursday that based on current trends, it will cut interest rates in June, while the Bank of England may cut interest rates in June or August. Thus, this difference is a strong force for currency dynamics and means that the price of the US dollar can strengthen against the euro and the pound sterling.

In general, the reduction in expectations for a cut in US interest rates also extended to stock markets, which came back under pressure and strengthened the “safe haven” dollar while affecting the “high” pound sterling through the risk channel. It is a win-win for the US dollar at present.

Technical Forecasts for the GBP/USD pair today:

The GBP/USD price formed a double top pattern around the 1.2830 level between January and March. It has now collapsed below the neckline of this pattern at 1.2520, the low of February 5. Moreover, the pair moved below the 50-day moving average and the Ichimoku cloud indicator. Also, the Relative Strength Index (RSI) is approaching the oversold level at 30. Therefore, the outlook for the pair is very bearish, which could see it fall to the support level at 1.2300.

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• The EUR/USD fell to a five-month low of 1.0622 support amid risk aversion and a negative outlook for the future of ECB policy at the end of last week’s trading.
• The losses of the most popular currency pair in the forex market increased under pressure from divergent scenarios for the ECB and the Federal Reserve, and increased demand for the US dollar due to geopolitical turmoil.

For its part, the ECB left interest rates unchanged at its April meeting and indicated that if core inflation continues to slow at the expected pace, it may be appropriate to ease monetary tightening in June. Such a move is in stark contrast to the expected path of the Federal Reserve, after evidence that US inflation is holding at levels above the Fed’s target has prompted markets to delay bets on the first Fed rate cut from June to September. The divergence between the two policy outlooks has been exacerbated by geopolitical concerns over the increasingly hostile environment between Israel and Iran, leading to escalating war fears and driving emerging markets around the world to rely on the US currency.

So, what is the expected outcome for the EUR/USD in the coming days?

The EUR/USD price trend is now more bearish, according to Fuad Razakzadeh, market analyst at City Index. The EUR/USD trend is now more bearish. Last week’s trading saw the EUR/USD break below some key support levels, initially breaking 1.0795 and now falling below the 1.0695-1.0725 pivot area. Clearly, this area provided strong support in December and again in February.

The EUR/USD also broke below the upward trend line that had been in place since October. And with the 21-day EMA falling below the 200 SMA, this is another bearish signal. With price action below these moving averages, this suggests that the path of this resistance is clearly on the downside. Therefore, we expect the EUR/USD to likely decline to the 1.06 support initially before 1.05 and possibly test October’s low of 1.0448 after that.

On the upside, resistance now comes in at the broken support area I mentioned between 1.0695 and 1.0725. If we break above that, the next resistance line or potential resistance comes in at around 1.0795 followed by 1.0835. These were previous support levels as mentioned. Pressure on the EUR is mounting as the gap between expected rate cuts from the Fed versus the ECB widens to its widest this year. The latter is moving towards cutting rates properly while extending the timetable for the former. As of this writing, the EUR/USD was trading at its lowest since mid-November, after breaking below key support in the 1.0695-1.0725 areas.

Overall, we may see the US dollar price remain supported on any short-term declines, as the interest rate story in the US and the rest of the world – for example, the European Central Bank and the Bank of Canada – becomes more positive for the dollar. Recently, the EUR/USD rate has been stuck in a very tight range in recent months and never looked like it was about to take off anytime soon anyway, all thanks to continued weakness in Eurozone data. Their recent weakness reflects the growing divergence in interest rate paths between the United States and the Eurozone.

Currently, traders not only see a greater chance of an ECB rate cut in June compared to the Fed, but they are also factoring in more cuts overall for 2024. Naturally, the US dollar side of the story stems from the sticky nature of inflation in the US, the surprising resilience of data strength overall – plus rising crude oil prices, which is always positive for the dollar. Also, US consumer prices rose to their highest annual pace since October in March, hitting 3.5% mid-week.

Meanwhile, this was the fourth consecutive month that the CPI has exceeded market expectations, as prices for many essential items rose sharply, including car insurance, transportation, and hospital services, not to mention rent, electricity, and restaurants.

On the Eurozone side, a weak economy and cold price pressure have increased pressure on the European Central Bank to cut interest rates sooner rather than later. For her part, European Central Bank President Christine Lagarde acknowledged on Thursday the possibility of a reduction in June. Apparently, as many as five members of the ECB’s Governing Council appeared to call for lower interest rates at a meeting on Thursday, according to Bloomberg. The consensus suggests that the first phase of interest rate cuts by the ECB could lower the deposit rate by around 100 basis points from 4%.

EUR/USD Technical Analysis and forecast:

Amid increasing global geopolitical tensions, especially in the Middle East region after the Iranian strikes, the gains of the US dollar will remain stronger and continue. Therefore, we expect a downward trend in the EUR/USD pair, despite its recent losses, moved some technical indicators towards strong saturation levels for selling, according to the performance on the daily chart. Currently, the closest support levels for the current trend are 1.0590 and 1.0455, respectively. From the last level, it is preferable to return to buying euros and dollars, but without risk. On the other hand, over the same period, the current downward trend will not be broken without returning to the resistance levels of 1.0775 and 1.0830, respectively.

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• The USD/JPY continued its remarkable rally last week amid continued signals of further tightening by the US Federal Reserve.
• The pair extended its gains, hitting a 34-year high of 153.38 resistance.
• Similarly, the GBP/JPY rose to 193 while the EUR/JPY rose to 165 resistances.

According to forex trading platforms, the yen continued to decline after a series of strong US economic data. A report from the BLS last Friday showed that the US economy continued to add thousands of jobs in March. It added more than 303,000 jobs in March as the unemployment rate fell to 3.8%. Moreover, the US headline CPI jumped from 3.2% to 3.5% in March, the highest level in months. Also, the core inflation rate rose to 3.8%, nearly double the Fed’s 2.0% target.

According to the results of the economic calendar data, a separate report revealed that the core producer price index rose from 2.1% in February to 2.4% in March. Also, the headline producer price index rose to 2.1%.

Therefore, the US dollar index DXY jumped to the upper resistance of 106.00 for the price of the US dollar during the trading of the year 2024, as investors expected that the Federal Reserve would begin raising US interest rates later this year. Instead, the bank is likely to keep interest rates steady for longer than expected. The general opinion is that the difference between interest rates in the United States of America and Japan is likely to continue to widen. Furthermore, the interest rates in the United States of America range between 5.25% and 5.50%, while interest rates in Japan are 0.0%.

In this case, the yen’s only hope is for the Japanese government to intervene in the forex market. In this regard, the government said in a statement last Thursday that it does not rule out any options regarding interventions. These interventions could be like what happened in 2022 when the government injected $60 billion to support the currency. While the yen’s reaction to these interventions was positive, the impact was short-lived as the USD/JPY rose to a high of 151.94 in October 2022.

Overall, the US Federal Reserve’s June interest rate implied swap odds fell to less than 17% after the strong inflation reading in the US, down from more than 58% the day before. The odds of a cut at the July meeting fell to 43% from approximately 75% previously. Now, swap markets are pricing in just one rate cut for 2024 in the US, down from a peak of seven cuts reached several months ago. Clearly, this alone explains the dominance of the US dollar.

But the question is, can this continue? To what extent can interest rate cuts be “priced in”?

In general, the answer to this question will hold the key to the dollar’s transformation. Moreover, the clues will only emerge in the next set of Labor market and inflation data, due in May. Even then, it will take a series of soft prints to convince the market that the US economy is finally starting to calm down. When rate cut bets start to rise again, the dollar will turn.

USD/JPY Technical Analysis and Expectations Today:

The exchange rate of the US dollar against the Japanese yen (USD/JPY) continued to rise this week with the rise in the US dollar index. Recently, it had risen above the crucial resistance point at 151.94, its swing high in October 2022 and November 2023. Also, this price was the top side of an ascending triangle pattern. Technically, the pair moved above the 50-day Exponential Moving Average (EMA) while the Brilliant Oscillator moved above the neutral point. The Relative Strength Index (RSI) has moved above the overbought level. Therefore, the outlook for the pair is bullish, and the next point to watch will be at the 155 resistances. Ultimately, a drop below the 151-support level will invalidate the bullish outlook.

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• GBP/USD recovers toward 1.2500 after touching a new multi-month low on Friday.
• The pair could extend its rebound in case risk mood continues to improve.
• Investors keep a close eye on headlines surrounding the Israel-Iran conflict.

GBP/USD staged a rebound early Monday and advanced above 1.2450 after slumping to its lowest level since November at 1.2426 ahead of the weekend. The technical outlook suggests that the bearish bias remains intact but a de-escalation of geopolitical tensions could help the pair extend its recovery.

Investors sought refuge ahead of the weekend on reports of Iran preparing an attack on Israel in retaliation to the suspected Israeli attack on Iran’s consulate in Damascus on April 1. In turn, the US Dollar capitalized on safe-haven flows, triggering a sharp decline in GBP/USD in the late American session.

Over the weekend, Iran launched an attack with drones, cruise missiles and ballistic missiles. Israeli military spokesman Rear Admiral Daniel Hagari said in a televised statement that only a small number of ballistic missiles reached Israel.

US President Joe Biden has reportedly told Israeli Prime Minister Benjamin Netanyahu that the US would not participate in any Israeli counter-offensive against Iran. Meanwhile, German Foreign Minister Annalena Baerbock said that Israel now should secure the ‘defensive victory’ and added that a further escalation of the conflict in the region should be prevented. 

US stock index futures were last seen rising between 0.4% and 0.6% on the day. In case Wall Street’s main indexes open in the positive territory and continue to push higher, the USD could have a hard time preserving its strength and allow GBP/USD to edge higher.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 30, suggesting that GBP/USD is staging a technical correction, while remaining bearish in the near term.

On the upside, 1.2500 (psychological level, static level) aligns as first resistance before 1.2560 (static level) and 1.2580 (200-day Simple Moving Average).

Static support seems to have formed at 1.2450 ahead of 1.2400 (static level, psychological level).

• GBP/USD recovers toward 1.2500 after touching a new multi-month low on Friday.
• The pair could extend its rebound in case risk mood continues to improve.
• Investors keep a close eye on headlines surrounding the Israel-Iran conflict.

GBP/USD staged a rebound early Monday and advanced above 1.2450 after slumping to its lowest level since November at 1.2426 ahead of the weekend. The technical outlook suggests that the bearish bias remains intact but a de-escalation of geopolitical tensions could help the pair extend its recovery.

Investors sought refuge ahead of the weekend on reports of Iran preparing an attack on Israel in retaliation to the suspected Israeli attack on Iran’s consulate in Damascus on April 1. In turn, the US Dollar capitalized on safe-haven flows, triggering a sharp decline in GBP/USD in the late American session.

Over the weekend, Iran launched an attack with drones, cruise missiles and ballistic missiles. Israeli military spokesman Rear Admiral Daniel Hagari said in a televised statement that only a small number of ballistic missiles reached Israel.

US President Joe Biden has reportedly told Israeli Prime Minister Benjamin Netanyahu that the US would not participate in any Israeli counter-offensive against Iran. Meanwhile, German Foreign Minister Annalena Baerbock said that Israel now should secure the ‘defensive victory’ and added that a further escalation of the conflict in the region should be prevented. 

US stock index futures were last seen rising between 0.4% and 0.6% on the day. In case Wall Street’s main indexes open in the positive territory and continue to push higher, the USD could have a hard time preserving its strength and allow GBP/USD to edge higher.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 30, suggesting that GBP/USD is staging a technical correction, while remaining bearish in the near term.

On the upside, 1.2500 (psychological level, static level) aligns as first resistance before 1.2560 (static level) and 1.2580 (200-day Simple Moving Average).

Static support seems to have formed at 1.2450 ahead of 1.2400 (static level, psychological level).

• The US dollar initially pulled back against the Japanese yen during the trading session on Friday, but at this point in time, have turned around to show signs of strength.
• That makes a lot of sense considering that we get paid at the end of every day to hold this pair.
• And of course, we recently, just a couple of days ago, in fact, had seen a major breaking of a ceiling in this market in the form of the 152 yen level.

With that being the case, I think you’ve got a real shot at this market taking off to the upside and the way it behaves on each dip tells me there are plenty of people willing to get involved and looking to pick up a little bit of value when it comes to the greenback. If we can break above the top of the candlesticks of the last couple of days, then it opens up a move to the 155 yen level, which has been my target for a while. The 152 yen level should continue to be supported.

Plenty of Support Under Here

But even if we break down below there, I think there is an even more interesting support level near the 150 yen level where the 50 day EMA is hanging about. The interest rate differential continues to be huge in this pair. And of course, there’s also the possibility that the Federal Reserve may not be cutting rates this year, at least not as long as inflation stays as sticky as it has been.

And that of course has continued to drive the value of the US dollar much higher. With that being said, I continue to buy dips and I do believe we will get to the 155 yen level over the next several weeks. It will take a certain amount of time to get there, and of course a lot of effort. Ultimately, there is no interest on my part to get short of this market in the foreseeable future.

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• The euro had a very rough Friday, as we broke below the crucial 1.07 level.
• This is an area that had been the bottom of the larger consolidation area, so breaking through their course will capture the attention of a lot of traders.
• At this point, the market is likely to continue to look at the 1.07 level as an important level, so if we do rally from here, then it could offer overhead resistance.

If we were to break down below the bottom of the candlestick for the Friday session, then it is likely that we will continue to see momentum to the downside, possibly sending the euro down to the 1.05 level. With this being the case, we would see a lot of US dollar strength across the board, so even if you are not trading the euro, the reality is likely that we will see the greenback destroy everything in its path.

Major Breakdown?

The question now is whether or not there’s any follow-through. I would anticipate that it’s likely there could be, mainly due to the fact that during the ECB Press Conference, Christine Lagarde suggested that the European Central Bank could be cutting rates as soon as June, and that of course puts a lot of downward pressure on the currency. That being said, there are still a lot of questions as to when the Federal Reserve will start cutting, and that obviously has an effect on the market as well. I expect a lot of noisy behavior, but this major breakdown could be the beginning of something fairly large.

If we do turn around and take out the height of the Thursday candlestick, then I would be convinced that we are simply going to hang around in the consolidation area that we had been in for ages. Keep in mind this is a year that is probably going to see both central banks cut interest rates, so I don’t know that we will break down below the 1.05 level. It’s worth noting that we reached that level last year also, only to turn around and bounce up into the larger consolidation phase. In other words, the downside is probably somewhat limited.

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