GBP/USD Forecast 02/02: British Pound Drops On Friday As US

(MENAFN- Daily Forex) The US Dollar finds itself very much still alive, as the Trump administration is nominating Kevin Warsh for Fed head/USD

The British pound has fallen significantly during the trading session on Friday to break down below the 1.3750 level. The 1.3750 level is an area that previously had major support and resistance going over the course of several years, so the fact that we broke down below there is not a good sign.

That being said, we are not that far below it, so I wouldn't be overly concerned about it, but ultimately I think part of this coming together for negativity is probably due to the fact that Donald Trump is nominating Kevin Warsh for the Federal Reserve Chairman and that is a person that is a little bit more hawkish. All things being equal, that should help the US dollar Fed and FX Markets

Ultimately this is a market that has gotten a little bit overextended and now it looks like we are going to continue to see questions asked of whether or not we can continue to see this type of momentum. If we do break down from here, the 1.35 level is your next support level, and I think that's crucial because if we give that up, then the British pound could find itself in trouble.

The question now is whether or not the US dollar is going to make a bigger move against most currencies, and that very well could be the case, but I don't know that the British pound would be the first place I would start shorting in order to buy dollars. I can think of several other currencies that might be better candidates for that, such as the Japanese yen and the New Zealand dollar.

EURUSD Chart by TradingView

Ultimately, I think we are in an area we need to watch very closely because we could find ourselves seeing a major sea change in the momentum of FX markets overall. Over the longer term, I do think it'll be interesting to see how this plays out. I think you've got a situation where traders are going to be very cautious at the moment because a new Federal Reserve Chairman could very well change the outlook for the currency markets overall. I think this goes far beyond the US dollar, but let's see what the market does over the weekend as it will have time to digest all of the headlines.

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