The British pound initially pulled back a bit during the trading session on Tuesday but then shot straight up in the air to finally break above the crucial 1.3750 level. This is an area that has been trouble more than once, and the fact that we have broken above there signifies that we are going to go much higher. This was a barrier that the market had fought with for a couple of weeks, so now it is free to go much higher.
Over the next several weeks, I anticipate that the British pound is probably going to go looking towards the 1.40 level next, as it is the next large, round, psychologically significant figure, and an area where we have seen previous action. The market is undervalued, and I believe that it will eventually go looking towards the 1.50 level, but it is going to take some time to get there. Nonetheless, this was a significant move that buyers will pile into. We will see plenty of buyers on dips on short-term charts, and that signifies that a major change in attitude has occurred.
Part of what is going on is the fact that the British pound has been undervalued for quite some time and punished for Brexit. We are far beyond that and now it looks like we are beyond the idea of concern when it comes to the coronavirus lockdown measures. After all, the United Kingdom is also starting to lead the pack when it comes to vaccination numbers, and it is likely that the British pound will continue to rally against the US dollar, which is currently being punished for the idea of $1.9 trillion worth of stimulus. Furthermore, there is the whole “reflation trade” that people are getting involved in, and that tends to be very negative for the US dollar in general.
This is a “buy on the dips” type of scenario, and I have no interest in shorting the British pound anytime soon, but if we were to turn around and lose three handles, then I might have to think about doing so. It seems to be very unlikely to happen anytime soon.
