As the dark clouds have been fornming above the high levels for the GBP/USD as we have mentioned before the corrective move is in the making. As most investors switched positions while maintaining long EUR/USD and GBP/USD prior to the recent NFP and the unemployment figures reports; this led them to arbitrary hedge those positions in the USD/JPY which led the surge for the USD/JPY at the 97.50 levels.
This movement for some traders say that it was overdone. But the movement created an increase in volumes that also led the increase in volatility for the prices. As many analyst sees that there is still a matter of recovery that the real estate market needs to prove before actually declaring that the recession is finally over. That remains to be seen in the near future. Plus the widening trade deficit also puts a plug in the dollars upward momentum which may result for traders to simply unload any profitable trades.
For now, the selling divergence has occured at the high levels of 1.7014 for he GBP/USD and the respective high set by the EUR/USD at the price level of 1.4446. So the corrective move will be sustained for the time being. How far down is the 65K dollar question. The current prices are within the 50% and above Fibonacci retracement levels and going back to the 38.2% will likely be made. However, this may be a brief pause until fresh news will prevail over the market again.
The bullish configuration of the weekly and monthly charts on a technical basis is very much intact. This is supported with the Trend -following Theory that the next leg up would be higher than any previous highs that the European majors had established at the end of the 7th trading day of August 2009. A technical support also is the Elliot's Wave formation that still has to run its full course before the GBP and the Euro would really die down. Expect the trend to continue!
Just remember, there is no straight ups or downs in this volatile market. So consider the risks involved when trading the Forex market.
Good Luck and Happy Trading!
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