The British pound tried to rally during the trading session, but then broke down significantly as the US dollar got a push higher during later trading hours. Ultimately, this is a market that looks as if it is hell-bent on trying to get down to the 1.37 level underneath, an area that has been supportive more than once. The 200-day EMA is also reaching towards that level and flattening out. This could suggest that we are trying to form the bottom of a larger consolidation area yet again, as between that level and the 1.42 level has been very reliable.
If we were to break down below the 1.37 handle, the market then has to test the 200-day EMA. If we were to break down below the 200-day EMA, then it is likely that the market could go looking towards the 1.35 handle. The 1.35 handle level underneath is a large, round, psychologically significant barrier, and I think that would be the next target on the breakdown. If we break down below there, then the British pound should start falling apart.
When you look at the US Dollar Index, it is obvious that we are trying to break down below a major downtrend line, and as we closed at the very top of the range for the session in that index, it suggests that the greenback will continue to go higher, and that will be seen in this market. It is a little bit more influential against the euro, but at the end of the day both of these currency pairs do typically follow each other. So while I believe that this pair probably will continue to drop lower and try to test the support, at the end of the day the British pound looks like it is going to fare a little bit better than the euro. With that, I am a seller of a market move below the support level, or perhaps I may go ahead and short the EUR/GBP pair. That is a process called “triangulation” that I use quite often. Ultimately, I have no interest in buying this market, and I think that sooner or later rallies will be selling opportunities on signs of exhaustion as this market has proven more than once over the last couple of weeks.
