Is now the time to be short GBPUSD?

Sterling underwent a fall from grace since the
beginning of year, amounting to a 9.5%
decline against the dollar culminating in a
fairly brief foray below the 1.50 level in
March.

US indicators continue to look sharp and
financial markets are hoping that the stronger
US demand will have a positive impact on
other economies. This and the avoidance of
the triple dip recession have been paramount
to the recent sterling bounce.
The pound rallied back towards the 1.56 level
since 12 March trading in a bullish channel
but found the air rather thin above this level
(50% Fibonacci of the 1.6380/1.4830 move).
The breakdown of the long term uptrend from
the early 2009 lows in February of this year,
nevertheless suggests that further downside
might be inevitable for the pound. The breach
of the narrowing range at the 1.5660 area is
pivotal and is the key resistance to any real
GBP strength, barring a complete and utter
catastrophe in the Eurozone.
Over the past 2 days, this bullish channel has
given way and price action has declined
further and should the lows of 2012 at
1.5236 fail to hold the current trend looks set
to target the 23.6% Fib. retracement around
the 1.52 level.
Assuming the pair finds daily support at
these the 1.5236 levels, we cannot rule out a
retest of the 100 day moving average and
previous channel support at 1.5370/80. If we
examine the dollar index, we note that the
market is currently testing previous resistance
levels around the 83.50 level which if hold
would support this theory.
The incoming Bank of England governor,
Mark Carney has already intimated that
monetary policy under his guidance will likely
be ultra- easy with many Monetary Policy
members suggesting that inflation concerns
reside forefront as the UK economy gets back
on track.
Given that the ECB have recently cut rates
and the strong positive correlation between
EURUSD and GBPUSD one could expect that
the MPC will be even more determined to
advocate a weaker pound.
Given the fundamentals and the longer term
trend, I would presently look to short the
pound on the rallies.
A break higher to previous channel support at
1.5380/1.5400 might provide this opportunity
with a stop loss at 1.5490. Initial target
resides at the 1.5236 level and there may
well be opportunity to add to the trade should
this level fail.



source:forexnews