The British pound has rallied a bit during the course of the trading session on Monday as traders have come into the picture to get moving after the weekend. The 200 day EMA sits just above and offers plenty of resistance, as we have seen it do over the last couple of days. The 200 day EMA also attracts a lot of attention, so it will be interesting to see how this plays out over the next couple of days. If we do break out above it, we still have to deal with the 50 day EMA above at the 1.3781 level.
When you look at the longer-term chart, you can see that we have been making a bit of a topping pattern for a while, and of course we also have the downtrend line that sits in that same general vicinity. I think you can also make an argument for a descending triangle, so it all comes together for what I believe is going to be a very bearish situation. Beyond all of that, we also have the 50 day EMA dropping towards the 200 day EMA, which is the so-called “death cross.”
If we break down below the 1.36 handle, then it opens up a significant selling pressure, perhaps even a drop all the way down to the 1.30 handle. The market has been forming a longer-term topping pattern, and a breakdown below the 1.36 handle confirms it for me. I would anticipate a lot of support in that area, but like I said, this breaks down could be rather big.
On the other hand, if we turn around and take out the 1.39 level, that is likely that we go much higher. At that point, I would anticipate a quick move to the 1.40 handle, which could be a significant barrier. If we can break above there, then it opens up the possibility of a move towards the 1.42 handle which was the most recent high. That would obviously show a complete turnaround in the attitude, and as a result it would be a huge signal that we were going higher. Quite frankly, it looks as if the rising interest rates in America will continue to put a bit of a lid on the other currencies, as we have been seeing a “fade the rallies” type of situation for a while.
