The British pound broke down a bit during the trading session on Wednesday to show a continuation from the massive beating it took on Tuesday. However, we have turned around completely as the market continues to try to grind and pick away at the massive resistance in the form of the 1.42 handle. This has been the game for a while: pull back and turn around to pick away at that barrier.
Unless you have been living under a rock, you know that the 1.42 level has been a major barrier to overcome by the British pound lately, and a move above that should really start to bring in more volume and hot money. That hot money will jump in and push this market even higher, and based upon the previous technical analysis on the monthly timeframe, we could be looking at a move towards the 1.45 handle. That is an area in which I would anticipate a lot of hesitation, but it certainly looks like it is something that people are going to be aiming for longer term.
In fact, I anticipate that we will get to the 1.45 handle over the next several weeks, and that the breakout is all but imminent. After all, the longer we sit in this area and chip away at the resistance, the more likelihood of breaking through it and seeing a massive, short-covering rally by those who have been playing this range. Because of this, the market is one that continues to offer value on dips, and I do look at that as the way to trade this market: simply buying on dips.
The 1.40 handle underneath is massive support, and the 50-day EMA is starting to reach towards that level, so I think not only will “market memory” of the recent breakout come into play, but the fact that we also have that moving average and the fact that it is a large, round, psychologically significant figure. Because of this, I would be a buyer down there as well. If we break down below there, that could open up the door for another two handles to the downside, but it certainly looks as if the market does want to go higher given enough time.
