The British pound rallied a bit during the trading session on Tuesday, but as you can see, we continue to fail to break above the 50 day EMA. That being said, the market can break down below the lows of the trading session on Tuesday, then it is likely that we go back down towards the 200 day EMA. Furthermore, it looks to me as if Brexit is going to continue to cause issues, and therefore I think that we are going to continue to show weakness in the British pound.
Looking at this chart, I think that short-term traders will continue to fade the British pound, as there are far too many issues. The US dollar will continue to be a place that people run to in order to find safety. Ultimately, if we break down below the lows over the last week or so, that is a very negative sign for this pair, perhaps opening up the possibility of a move down to the 1.25 handle. That is an area that obviously offers a lot of psychological importance built-in, and the markets will continue to see these big figures as areas where longer-term traders will be getting involved. Looking at the chart, the long wicks that we continue to see near the 50 day EMA continues to cause quite a bit of bearish look to the market.
Everything being equal, I believe that we will continue this potential down trending channel that we are trying to form. Even if we break higher, I recognize the 1.30 level as a significant barrier for longer-term buyers to get involved with and push to higher levels. With Brexit and the United Kingdom possibly locking down its economy that is not going to help the British Pound to strengthen. In fact, a big portion of the rally has been based upon the idea that the United Kingdom will not have negative interest rates, but there are so many problems out there it is difficult to imagine a scenario where people are willing to buy the British pound hand over fist for any length of time. If we were to break down below the 1.25 handle, that could lead to much bigger moves lower, perhaps down to the 1.2250 level and even the 1.20 level. Obviously, there is a lot of noise just waiting to happen now.
