We will see a lot of choppy behavior in the short term, which has been typical of currency markets across the board.
The British pound rallied a bit on Tuesday but gave back gains to form a shooting star. By doing so, it looks as if the market is going to continue to see a lot of interest at the downtrend line. The 50-day EMA underneath offers significant support, at least in the short term. If we were to break down below that level, then I think the British pound would probably go looking towards the 200-day EMA.
If we continue to see this noisy behavior, it is probably only a matter of time before the US dollar strengthens. The interest rates in America have been all over the place during the trading session, so it does make sense that we would hear a lot of noise with anything involving the USD. The British pound has a certain amount of questions to be asked of it as well, as we see a lot of noisy behavior in this general vicinity.
If we were to turn around and break above the top of the shooting star for the trading session, then it is likely that we will go looking towards the 1.40 level. That is an area that would attract a lot of attention, so I think that the market needs to be very cognizant of that region. If we were to break above the 1.40 handle, then the market is likely to go much higher, perhaps taking off towards the 1.42 handle.
On the other hand, if we turn around and break down below the 1.38 handle, then the 200-day EMA/1.37 level should attract quite a bit of attention in and of itself. Breaking down below that level then opens up the possibility of a move towards the 1.36 handle underneath, where we had formed a massive “double bottom.” With that in mind, I think that you would have to look at the 1.36 handle as a major support level that, if violated, could lead to a massive selloff in this pair. That being said, we are a long way from that level, so I think that we will see a lot of choppy behavior in the short term, which has been typical of currency markets across the board.