The start of 2015 looks very familiar to the end of 2014 for many markets around the world as the USD continues to dominate the spectrum and commodity prices fall even further. Or as my colleague Matt Weller so poetically stated already this morning, “New Year, Same Result.” While the EUR/USD is grabbing a lot of the headlines this morning for reaching a 4.5 year low on the back of comments from European Central Bank President Mario Draghi, the GBP/USD is suffering even more greatly, falling over 200 pips since the high set on the last day of 2014.
While I mentioned earlier this week that the 1.56 level might be a particularly difficult to overtake due to technical resistance in that area, I must admit, I didn’t foresee such a strong selloff at that point. Particularly since the reason for the selloff appears to be more based on what the ECB is doing rather than any specific dynamics in the UK, this move may be a little overzealous. Now don’t get me wrong, the GBP isn’t doing itself any favors with Manufacturing PMI coming in lower than anticipated this morning, but not to this extreme.
Therefore, it may be prudent to try to see if there are any levels at which it would seem logical to see a bounce in this currency pair that visually appears to be overreacting. Fortunately, there is one level in particular that fits this bill for three reasons. It is widely known that round numbers often attract attention as our logistical brains seek order in chaos, so 1.54 looks tempting simply based on that principle. In addition to that though, there is a previously established trend line that corresponds with that level along with the completion of an ABCD pattern there as well.
The culmination of those technical patterns as well as the logistic reason for support near 1.54 could give this currency pair reason enough to bounce at that level. Be warned that if you see enough evidence for support, round handles tend to get broken before they bounce. So it may be prudent to wait for the break before hopping on the bandwagon. Also, since I’ve been using movies all week as a backdrop for my articles, let’s collectively tell the GBP/USD that “You Can Do It!”
