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At this point, it’s probably more or less going to be a “fade the rallies” type of situation, but a big breakdown is probably going to take some time.
The British pound fell a bit on Wednesday as we continue to see the US dollar act like a wrecking ball against almost everything. Because of this, the market is more likely than not going to continue to remain very soft, thereby allowing sellers to come back into this market every time we rally. The 1.22 level is an area that should offer quite a bit of short-term resistance, as it was short-term support until Wednesday.
If we break down below the bottom of the candlestick, then it’s likely that we will continue to drop. The 1.20 level will be targeted at that point, and it’s likely that we could see a breakdown below that level as well. If we do break below the 1.20 level, then it’s likely that this market will target the 1.18 level, and then possibly even 1.16. I don’t think that’s going to be easy, but clearly, there is much more interest in owning the US dollar than there is in the British pound. The Federal Reserve continues the tight monetary policy, and it makes quite a bit of sense that we will continue to see a lot of interest in owning the greenback as the safety currency also.
The 1.24 level above is significant resistance, especially with the 50-day EMA approaching it, as we have been dropping rather significantly. Market breaking above the 50-day EMA opens up the possibility of a move to the 1.26 level, but I don’t see that happening anytime soon. It’s not that we break above the 1.26 level that I would worry about the upside. Ultimately, the 1.30 level could be the target in that scenario, but if we were to finally break above that as well, then it becomes a complete switch of the trend. That being said, it would take a lot to make that happen, and I just don’t see things changing that rapidly. That being said, pay attention to the bond market in the United States, because if we continue to see yields rise, that will continue to put downward pressure on this pair. I do think at this point, it’s probably more or less going to be a “fade the rallies” type of situation, but a big breakdown is probably going to take some time.
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