The British pound has gapped lower to kick off the trading session on Monday, but it should be kept in mind that the Americans were not even on board as it was Labor Day in the United States. Furthermore, we had gotten a bit ahead of ourselves, so it is not a huge surprise that the British pound needed to cool off. The Federal Reserve continues to loosen monetary policy, and that works against the value of the greenback. Nonetheless, we cannot go straight up in the air forever so it does make sense that we would have a little bit of a pullback from the crucial 1.35 handle that we had last week.
Looking at the chart, you can see that there is a lot of noise all the way down to the 1.30 level, showing signs of potential buying. Because of this, I think that short-term bounces will probably lead to a bigger move to the upside eventually. The 1.30 level underneath continues to offer significant psychological and structural support, and the 50 day EMA is creeping up on that level as well. That being said, the market is not one that I would be shorting, because I see so many potential buying opportunities underneath.
The weekend had seen Boris Johnson suggesting that the Brexit was going to happen without some type of deal, and the British are starting to ramp up work on the fallback plan when it comes to leaving the European Union without some type of trade deal. This “knee-jerk reaction” is not a huge surprise but at the end of the day we are only pulling back towards an area that should have plenty of support underneath. I believe that the 1.30 level is the short term “floor” in the market that we see right now. I would be very aggressive on some type of bounce near that area, but I also recognize that we may not even get that far. I like buying dips, and I believe that we revisit the 1.35 handle. If we were to break down below the 1.30 level, then we will more than likely have to go down to the 1.2750 level to “reset” the entire uptrend as we would need to find more buyers at lower levels, looking for some type of value.
