This is a market that has been one way for a while, and there is not much in the way of fundamentals that should change it.
The British pound fell heading into the weekend, testing the 1.22 level rather quickly. At this point, the market looks as if it is getting a bit tired already, and it looks like the downward momentum will continue. Ultimately, the British pound has had a volatile couple of days, but at the end of the Friday session, it looked as if the longer-term trend remains intact.
Breaking down below the 1.22 level opens up the possibility of retesting the 1.20 level, an area that we had bounced from quite significantly the last time we visited it. Because of this, I think we more likely than not have a lot of noisy behavior coming down the road. With that in mind, I like the idea of selling short-term rallies and focusing on the 1.20 handle. If we break down below there, then it opens up a whole new rush of selling pressure, perhaps sending this market down to the 1.18 level.
At this point, the market will also have to pay close attention to the 50-day EMA, which is at the 1.26 level and drifting lower. Ultimately, this suggests to me that the market is likely to see a lot of noisy behavior in that area because the 50-day EMA has been so reliable. If we were to break above the 1.26 area, then we could see buyers come into this market and push it toward the 1.30 level. However, we remain in a downtrend and probably will for the remainder of the foreseeable future. If we break down below that 1.20 level, it would probably accompany massive US dollar strength in general, so I do think that it is worth paying close attention to.
If we do break above the 1.30 level, at that point I would anticipate that the trend had changed, and we would be looking at a British pound that is suddenly bullish. With the Federal Reserve being as tight as it is right now, I just don’t see that happening, but I suppose anything is possible. The most recent low was lower than the one before it, and it now looks as if we are going to break down below that low as well. This is a market that has been one way for a while, and there is not much in the way of fundamentals that should change it.
