The British pound has initially rally during the trading session on Wednesday but found enough resistance at the 1.30 level to turn around and form a bit of a shooting star. The shooting star of course is a negative sign, and although it’s normally a signal to start selling, I believe that it would be a bit premature to jump in with both feet as the market certainly has a lot of support underneath. If we can break above the 1.30 level, then it’s likely that we would go much higher, perhaps reaching towards the 1.32 handle.
Looking at this chart, the 50 day EMA is in the middle of that range, so it’s more than likely going to continue to offer some issues. Having said that, if we were to turn around a break down below the lows of the last couple of days, then the market could go down to the 1.28 handle. All things being equal, it’s very likely that the market will continue to see a lot of volatility and of course movement due to headlines coming out of either London or the European Union.
Having said that, the US dollar is extraordinarily strong and that will continue to cause some issues as well. Longer-term though, the British pound is extraordinarily undervalued, and therefore that has to be taken into account as well. At this point, short-term pullback should be an opportunity to pick up a little bit of value, and at this point I have no interest in trying to short this market until we break down below the 200 day EMA which is closer to the 1.27 handle underneath. At this point, the market is likely to continue showing signs of volatility but breaking down below the 200 day EMA seems to be very unlikely. I expect a lot of back and forth, but over the longer term I do anticipate that the British pound will recover, reaching towards the 1.35 level after a lot of fighting back and forth. Looking for value is going to continue to be the way look at this market, but I need to see a little bit of longer term stability.