The US Dollar Schizophrenia

• faithmight
• August 11th, 2011

When the S&P downgraded the U.S. after the market close on Friday, I was on my way to Curaçao to celebrate my anniversary and more R&R. And what great timing of that trip because the $USDX moved unbelievably when the market opened the week as market participants reacted to the downgrade and  what it all really means. However, despite the wild price swings in the $GBPUSD, a tremendous opportunity materialized – a downward channel of 350 pips as the USD has strengthened versus sterling due to the sell-off in equities.

The $GBPUSD has repeatedly failed at the 1.6500 major psychological and large quarter point level. In fact, you can look on the daily chart and see that cable has been unable to remain above 1.6500 since June 2011. However, perpetual USD weakness has not allowed the pair to drop below 1.5750 and form into a true bear trend.

Now 1.6250 remains the critical level and line in the sand as UK fundamentals shift in favor of a weak GBP. The fundamental story for the USD, however, is hazy and quite frankly schizophrenic. Market participants don’t know whether to rally the USD on risk aversion as central banks around the world intervene in the markets or sell the USD based on poor economics, ridiculous politics, and now a credit downgrade. Because of these uncertainties it has grown impossible to predict which way fundamentals will sway the USD.

As such, keep your eye on the 1.6250 level. Though I believe that this pair remains bearish as long as it is unable to close above 1.6500, timing is everything with this pair. As long as the pair closed above 1.6250, I was bullish the pair into 1.6500. Now that we have a close below 1.6250, as long as that continues I am bearish the $GBPUSD into 1.6100, 1.6050, and 1.6000. Trade what you see!

Some other great $GBPUSD charts to check out:

• GBPUSD UPDATE via @50pips
• British Pound ready for dump against the US$ via @peterlbrandt
• Forex EURUSD, GBPUSD, EURJPY Key Levels and Bias via @4xguy

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: $USDX, GBPUSD

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