GBP/USD Forecast: Threatening Major Breakdown

It looks like things are going to get much worse before they get better.

The British pound tried to recover a bit on Tuesday but then collapsed at the 1.22 level to turn around and fall straight through the floor. In fact, by the end of the day, we were threatening the 1.20 handle, an area that looks like it is going to break apart. This is a downtrend that has legs at this point, especially as the US dollar continues to strengthen overall, and the interest rates in America continue to climb as well.

As the world heads toward a potentially devastating recession, I do think that it is probably only a matter of time before we see the US dollar act like a wrecking ball against almost all currencies, this one included. Rallies at this point should be selling opportunities, as we are in such a strong downtrend. At this point, I don’t necessarily have a longer-term target, but I would anticipate that the 1.18 level could be the target over the next several weeks. Quite frankly, this is a horrific-looking chart, and it looks like we are going to go much lower given enough time. The fact that we are closing at the very bottom of the range does suggest that we have more follow-through coming, and with that in mind, I think that the market is going to continue to see reasons to get short.

At this point, the 50-day EMA sits at the 1.26 level and is currently lower. That should be a significant amount of dynamic resistance as well, so I think we are looking at a scenario where we need to break above there on a daily close at the very least, and really at this point, I don’t see that happening. Any balance should be an opportunity to pick up “cheap US dollars” going forward. Because of this, the market will continue to see plenty of downward momentum.

The Federal Reserve is going to have to get extraordinarily tight with its monetary policy, and I think that’s going to continue to be the case. As long as that’s the case, the US dollar is the king of all currencies. In fact, it looks like things are going to get much worse before they get better.