GBP/USD Forecast 20/01: Recovers After Gapping Lower (Video)

(MENAFN- Daily Forex) The British pound has gapped lower against the US dollar only to jump back to the upside in thin holiday trading.

The British pound has gapped lower against the US dollar only to jump up in the air in what will have been very thin trading during about half the session, as the United States was closed for Martin Luther King Jr. Day. That being said, I think this is a very interesting move because initially, we did run to the safety of the US dollar, and now it seems like European traders have decided that the United States is no longer a safe place to put your money, and they bet against it.

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I think this sets up for an interesting showdown, especially between these two particular currencies, as the Bank of England, although recently cut, it is being a bit sluggish about cutting. Just like the Federal Reserve is. So I think this continues to be a very choppy market, but I am watching this area between right now and the 1.35 level for signs of weakness because I am more than willing to short this market. We have already seen that the British pound does not want to jump above the 1.35 level for any significant amount of time. And until it can on a daily, maybe even a weekly close, I don't really see the need to argue with it.

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There are some fairly important numbers coming out of the United Kingdom this week, but really, I think this probably has more to do with the United States than the United Kingdom. We do get the claimant count change on Tuesday and CPI on Wednesday. So that, of course, will have a major influence on the pound itself.

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If it's even remotely weak, that probably turns this right back around. If this pair turns around, then you should expect the Euro, the Swiss franc, the Japanese yen, the Canadian dollar, and the rest of them to follow suit and start running back to the greenback.

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