The British pound initially tried to rally during the trading session on Tuesday, but then turned around fall rather significantly. This suggests that perhaps the pseudo-trendline that I have marked on the chart might be trying to hold, and quite frankly I do not know that the candlestick showed us enough as far as the future consideration for this pair is concerned. After all, this is a market that has been very volatile as of late, and I think more volatility is probably which can count on going forward as we reached into the month of September.
If we can break above the shooting star from Friday, meaning that we clear the 1.39 handle, then I think you have a fair shot of the British pound going higher. With that being the case, I would not have any interest whatsoever in trying to short this market, and I would anticipate that we would go looking towards the 1.40 handle. The 1.40 handle obviously is a large, round, psychologically significant number, breaking above that would kick off the extension of a “W pattern” that I think almost everybody in the world would see. The idea of the W pattern forming here would be the basis for a very strong bottom, sending this market much higher.
However, it looks as if the US dollar is starting to see a lot of strength across-the-board, so as you would anticipate the British pound is not operate in a vacuum. In other words, it is very likely that we will continue to see the US dollar move cyclically in the same manner not only here, but with the Euro, the Australian dollar, etc. It is worth noting that a break down below the bottom of the candlestick probably has this market looking for the 200 day EMA underneath. The 200 day EMA sits at the 1.37 handle, an area that has been important more than once.
Breaking down below that level would be very negative, and we would almost certainly test the “double bottom” that we had seen previously, allowing this market to test whether or not we are going to break down drastically. Clearing that double bottom would be extraordinarily negative, sending this market into a bit of a selloff. In fact, at that point I think we would get extraordinarily bearish.
