The British pound initially tried to rally on Tuesday but gave back gains to show signs of weakness. By doing so, the market looks as if it is going to continue to see a lot of trouble above. The 1.32 level above is an area that has seen a significant amount of resistance, and we have the 50-day EMA dropping towards that area as well. With all of that being said, it looks as if rallies will continue to be sold into.
The shape of the candlestick is an inverted hammer, and a breakdown below the bottom of the candlestick could kick off even more selling, perhaps sending the British pound to test the 1.30 level. This is an area that is psychologically important and will attract quite a bit of attention not only from a psychological standpoint but a structural one as well as we have seen so much in the way of action at the 1.30 level over the last several years.
On the upside, if we can get above the 1.32 handle and the 50-day EMA, I might be convinced to start buying, but I would also need to see the US dollar falling in general, which is something that I do not anticipate being part of the markets anytime soon. After all, there are plenty of reasons to worry about risk appetite right now, which is something that the market would need to have in order for this pair to continue rising. I do not necessarily think that we will mellt down, I just recognize that this is a market that still has plenty of downward pressure on it, and not much has changed.
If we were to break down below the 1.30 handle, then there is a “zone of support” down to the 1.28 handle, and I think there is a lot of noisy behavior between those two levels. If we break down below the 1.30 handle, I would anticipate a move to the 1.28 level, but I also would anticipate that it will be very hard-fought, and choppy to say the least. Any breakdown below the 1.28 level would be extraordinarily negative, allowing more of a “trapdoor effect” in this market. In the short term though, this is a market that looks more likely than not to go sideways with more of a downward tilt than anything else.
