Longer-term, it looks as if we are trying to recover the overall uptrend that had been so important previously. Regardless, this is a market that is going to continue to be choppy.
The British pound has pulled back ever so slightly during the trading session on Thursday to show signs of consolidation. This makes a certain amount of sense, due to the fact that we had rallied quite significantly. The 1.38 level seems to be a bit of a magnet for price, and therefore it is not surprising that we are closing at the day near this level. The 1.37 level underneath should be massive support, as it had previously been resistance. The 50 day EMA sits right there as well, right along with the 200 day EMA. The market will continue to be very noisy, but I think well supported in this general vicinity.
To the upside, the 1.39 level offers a little bit of resistance but more than likely we are going to continue seeing a move towards the 1.40 handle above. The 1.40 handle is an area that would attract a lot of attention due to headline noise, but quite frankly we have been through this level couple of times now, so it certainly would only be a temporary issue. Furthermore, the Bank of England looks likely to raise interest rates, which could put a bit of a charge into the British pound as well.
On the other side of the equation, we have the US dollar, which has been sinking a bit as of late. Whether or not it continues to is still open for debate, but clearly at this point it looks like there is a bit of a repricing. The market is likely to continue to be a bit of a “buy on the dips” type of situation going forward, and that is exactly how I will play it. Having said that, if we were to break down below the 1.36 handle, then I think this market probably unwinds and goes looking towards the 1.35 level. That obviously would be a bigger “risk off” type of situation and would probably coincide with the US dollar strength across the world. Looking at this chart, it does seem as if something has changed as far as direction, and I think that should continue to be the case going forward. Longer-term, it looks as if we are trying to recover the overall uptrend that had been so important previously. Regardless, this is a market that is going to continue to be choppy.