The British pound rallied a bit during the trading session on Monday to break above the 1.39 handle, wiping out the losses from the previous session on Friday. It is essentially forming what you could be thought of as a “48-hour hammer.” That is a very bullish sign, and I think it is only a matter of time before the buyers come back in, unless Jerome Powell does something during his testimony in front of Congress to throw things into disarray again. I doubt it will, because he probably got the message last week.
The British pound has been in an uptrend for quite some time, so it is not overly surprising to see the market recover a bit, and as long as Jerome Powell does not suggest that tightening is coming, it is likely that this pair will continue to go higher. With that being the case, the 200-day EMA sits underneath and could offer support as it reaches towards the 1.37 region. That could be the “floor in the market” for the short term, perhaps starting a new trading range between that area and the 1.42 handle. In fact, that could be our summer range from all accounts that I see right now.
However, if the Federal Reserve chairman decides to talk about tightening during the day on Tuesday, it is possible that we could break down rather significantly, but judging by the reaction that we had seen over the last several sessions, he will have learned his lesson. Jerome Powell’s first loyalty is to Wall Street, as we have seen over the last several years. Ultimately, a weakened US dollar and low interest rates are necessary due to the massive amounts of debt that the United States is currently in.
Adding to the massive bearish pressure on the US dollar from a longer-term cyclical standpoint is the fact that fiscal policy is off the rails in the United States. As long as the Biden administration is looking to spend trillions at a clip, it is difficult to imagine that the US dollar is going to rally under any circumstance with the exception of some type of financial panic or crisis. In fact, it looks like currency traders have already called Chairman Powell’s bluff.
