The British pound has gapped higher to kick off the trading session on Wednesday, and then went back and forth. At this point, the market is forming a bit of a harami, which can be a move in general. All things been equal, this is a market that I think continues to see buyers on dips, especially as the 50 day EMA is starting to curl higher, and we have pulled back in order to retest the downtrend line from before.
The 200 day EMA also sits right at the same level as well, and therefore think it is only a matter of time before we will go to the upside and try to take out the 1.3830 level. Breaking above those levels could kick off the move higher, perhaps reaching towards the 1.39 level. The 1.39 level has been important more than once, and therefore I think if we breached that level, it will attract a lot of attention. It would almost certainly have this market looking towards 1.40 level, an area that would capture a lot of headlines.
It is worth noting that the Bank of England is looking to raise interest rates, and that could continue to push the British pound higher. Furthermore, the US dollar itself continues to see a lot of weakness, so therefore we could get a bit of a boost due to that fact alone. That being said, if we were to turn around and break down below the 1.37 handle, it could open up a move to lower levels. In that general vicinity, I would anticipate that it opens up a move down to the 1.36 level. If that level were to be breached, it could open up a bit of a “trapdoor” to lower pricing, so if we were to break down below that level, I think it is very likely that we would see a plunge lower.
All things been equal, it certainly looks as if we are trying to kick off the week on the good foot, so I think that the buyers will probably continue to have a certain amount of momentum built up. Because of this, I think that we have plenty of noisy trading ahead of us, but more than likely it still favors the upside overall. Expect noisy behavior, but recognize that the market seems to be trying to build up momentum for a bigger move.
