The British pound initially pulled back during the trading session on Tuesday but then turned around to show signs of strength again. The market reached towards the 50-day EMA, as the market started seeing the US dollar sell off again. The US dollar is quite often the main driver, and as a result, that could have been what we saw during the day as the euro also gained quite drastically.
It is worth noting that the 50-day EMA has offered significant resistance previously, and the 1.39 level has a certain amount of psychology built into it as well. With that being the case, it is likely that the Federal Reserve meeting during the day on Wednesday could come into play and move this market one way or the other. I do believe that there is a lot of potential for selling pressure between here and the 1.40 handle, which is an area that will attract a lot of headlines.
At this point, if the market shows any signs of exhaustion, it is likely that we will turn around and go looking towards 1.37 handle. This is a market that still faces an uphill battle, but if the Federal Reserve becomes very dovish, it is possible that we could see the British pound be one of the benefactors. On the other hand, if the Federal Reserve disappoints the market, we could very well see this market drop.
This is a market that has to worry about the Delta variant and what is going on with the United Kingdom as far as reopening is concerned. The market might be a little bit overextended from the last several days, but that does not mean that we cannot go higher. I would also pay close attention to the 200-day EMA as well, as a lot of longer-term traders will be paying close attention to it. This pair also has a little bit of a “risk appetite” variant to it as well, so the market continues to see the US dollar act as a safety currency more than anything else. Expect choppy behavior, but eventually we should see an impulsive candlestick.
