The GBP/USD pair had an initial gap on the open Monday, but has pulled back a bit after the fact. The 1.58 - 1.59 area has been very resistive, and as a result this pair struggled to hold onto gains during the session.
The would have originally received a bit of a bid because of potential European solutions to the Greek debt situation. The Pound and the United Kingdom itself is heavily exposed to European banks and debt, and as a result the future of the Pound is highly correlated to the future of the Euro, at least for the intermediate term. As goes Europe, so goes the UK to a lesser extent.
The pair has consistently struggled at these area, and as a result we are not overly excited to go long at this point. The 1.60 level should continue to cause reactions as well, and quite frankly the move higher has been very parabolic and could use a bit of a pullback, or at least one that is much stronger than the one we have so far.
The risk on / risk off attitude of the markets will undoubtedly play a massive part in the direction of this pair, and headlines coming out of Europe will more than likely be the catalyst for those headlines. Because of this, the pair will more than likely be difficult to trade in the near term as the schizophrenic nature of the markets lately will more than likely continue to push things around.
The UK looks as if it is going into some kind of recessionary environment, or possible slowdown at the very least, and because of this there is a real chance the Bank of England will either ease through more bond purchasing programs, or actual rate cuts, or even both. With this in mind, it is very likely the Pound will continue to struggle over the long term.
The pair sets up a selling opportunity if it can break below the gap from Monday, but if not - we are willing to wait until a close well above the 1.60 level to go long. The downside seems a bit less crowded, but we will have to follow the market regardless.
GBP/USD Forecast February 21, 2012, Technical Analysis
GBP/USD Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3