The recent rally has been nice, but when looked at through the prism of the last several months, it nothing but a blip on the radar.
The British pound sold off on Friday as we continue to see interest rates in the United States climb. By doing so, we have tested the 1.25 level, an area that has been important multiple times. If we can break down below the lows of the week, it is likely that the British pound will continue to go lower, perhaps opening up the possibility of a move down to the 1.24 level, followed by the 1.22 level.
Any rally at this point in time will more than likely end up being a selling opportunity, as the resistance is found just above. Furthermore, the 50-day EMA above is drifting lower, and offering a bit of dynamic resistance. With this being the case, I am a seller of signs of exhaustion that I can take advantage of. The US dollar has been strong for a long time, and I think it will continue to be so going forward. After all, interest rates in the United States are much higher than most other places right now, and of course, there is the “safety aspect” of the greenback as well.
Ironically, even if yields do start to drop in America, it’s likely that people will continue to see the US dollar as the place to run toward, especially if people start to buy bonds. Ultimately, any rally at this point in time is going to be a nice selling opportunity. Even if we were to break above the 50-day EMA, there is still plenty of selling pressure above the 1.30 level. There might be a nice short-term rally that you can buy into, but the 1.30 level was going to be very difficult to overcome.
On the downside, the 1.22 level is a potential target, and if we can break it down below there is likely that we would see the British pound drop down to $1.20 rather quickly. We are in a downtrend, so one would assume that sooner or later we will continue that overall attitude. The Friday candlestick certainly shows that we are starting to see a continuation of what had been for some time. The recent rally has been nice, but when looked at through the prism of the last several months, it nothing but a blip on the radar.