The British pound broke down significantly during the trading session on Monday but also saw a complete turnaround in the overall attitude. It looks very much like the British pound is going to continue to find support at the 1.35 handle. The 1.35 level is a large, round, psychologically significant figure that a lot of people will pay attention to, so it is only a matter of time before a certain amount of buying happens. Even if we do not see it here, I think that if we break down below the bottom of the candlestick, then we will go looking towards the 50-day EMA underneath there, which should be somewhat supportive as well.
The 50-day EMA has been reliable as of late, and if we pull back to that area, it will simply see a certain amount of psychology come into play. Underneath there, we have the 200-day EMA and we are fanned out quite nicely, so that does suggest that we will continue to grind higher. The pullback that we have seen makes sense, because there are a lot of things to worry about when it comes to the British pound, not the least of which will be the fact that the economy has been locked down yet again.
The British pound is historically cheap and we see a lot of pressure away from the US dollar, which is likely to see a continuation due to the fact that Congress wants to spend as much as humanly possible and beyond when it comes to stimulus. The trend is very strong; the fact that we have ended up forming a bit of a hammer does suggest that we have further to go. I believe the 1.3750 level above is a target, which has offered a little bit of resistance previously. If we can break above there, then we will go looking towards the 1.40 level given enough time. I have no interest in shorting this pair, and I think that any time we pull back it will eventually offer plenty of longer-term buying opportunities based upon the overall fundamentals going forward.
