The British pound initially rallied during the trading session on Monday but found the 1.2650 level to be a bit too restrictive to get over. This is an area that has caused a few issues of the last couple of days, and therefore it probably gave way to more selling as exhaustion hit the market. Ultimately, I do think that this is a market that needs to make a decision relatively soon and this has been a rather negative turn of events. We are breaking below the 200 day EMA, and as I record this we are trying to break down through the bottom of the previous candlestick. If we do, then the market is likely to go looking towards the 50 day EMA underneath to find support.
If we were to break down below the 50 day EMA we could see a significant move lower, which I had previously anticipated. Having said that, I think it is a bit surprising that we have rallied the way we have and I’m trying to make sense of this move has been a bit difficult. It looks as if we have a major zone of resistance between the 1.2650 level in the 1.2750 level. That is going to be a very bullish turn of events if we can break through there, but right now I think we are probably more likely to go looking towards the 50 day EMA than anything else.
As of late, we have formed a series of “higher lows” which of course is bullish. However, it looks like suddenly the British pound is going to continue to struggle with that same level above, and therefore the attitude could be changing again. If that is going to be the case, then the British pound could be very well getting ready to roll over again. A break down below the 50 day EMA then could have sellers jump in and even faster, reaching towards the 1.2250 level underneath which was the most recent low. I think at best you are looking at extraordinarily choppy conditions going forward. Expect a lot of volatility and back-and-forth trading overall in order to make a longer-term decision in this pair that clearly has a lot of headwinds.
