The British pound initially fell during the trading session on Monday, breaking down below the 1.41 handle. That being said, the market is likely to see buyers on dips trying to find value in what has been a very strong uptrend. At this point, the 1.42 level is an area worth watching because it has been so resistive, but at the end of the day it is also a scenario in which the sellers cannot get any momentum going.
When you look at the chart, you can see just how important the 1.42 level had been previously, so it should not be a huge surprise that we have struggled to get above here. If we do break above the highs of the Friday session, then I would be a buyer based upon the breakout. For me, that is the most likely of outcomes, as we have seen such a strong uptrend over the last year and ½ or so, and most certainly over the last two months. Once we get past the breakout point, this is a market that could really start to take off, as I believe the 1.45 level would be the most likely of short-term targets.
If we do pull back, I see a couple of areas that could offer support. The 1.41 level has shown itself to be somewhat resilient, but for me the real support is probably closer to the 1.40 handle. If we break down towards that area and show signs of support, I would be more than willing to jump into this marketplace and take advantage of value as it appears. I do think that there are plenty of value hunters out there willing to get on this trade, and it is worth noting that we are forming a continued push to the upside.
I think if we did break down below the 1.40 handle, then you could have a move down to the 50-day EMA, which is just a bit below there. Breaking down below that level could open up the possibility of a move towards the 1.38 level and that double bottom just underneath. If that gives way, then this market will fall apart. The biggest thing is that if the market were to break down below there it would probably be in conjunction with some type of larger “risk off” scenario.
