The British pound rallied a bit during the trading session on Monday to break the recent resistance and clear the 1.38 handle. That is an area that has been important a couple of times on short-term charts, but I think it is much more interesting above at the 1.39 handle, and I think that we will probably see some type of exhaustion between here and there. After all, we had been in a nasty selloff until recently, and now we have seen the market recover near the 200-day EMA.
On pullbacks, I think there will be a big fight near the 1.37 handle, which is a previous support level that we have sliced through once already. It is because of this that I think we could overcome that support level this time and start to go even lower. That means that we would have to see US dollar strength, which is possible considering that there has been quite a bit of concern around the world when it comes to the reopening.
On the other hand, if we do get a major risk-on move, we could overcome that 1.39 handle, which would open up the possibility of a move towards 1.40 handle which is a large, round, psychologically significant figure and the beginning of massive breakdown that we had seen. One thing that I would say here though is that we are essentially in a downtrend channel, so that is something worth paying attention to. If we do run into exhaustion here, I think it opens up the possibility of reaching towards the 1.35 handle over the longer term. If we were to break down below that level, then it is very likely that we would see even more selling pressure and therefore a complete breakdown in the overall trend.
The one thing I think you can count on is a lot of noise in general, as the market continues to chop around. Overall, we have seen more downward pressure than up, so I think you can continue to look for selling opportunities. I still believe that the US dollar is going to be crucial, as the market has without a doubt been driven by the greenback more than anything else. With the Federal Reserve on tap this week, it will more than likely have a lot to do with what happens next.
