The British pound fell significantly on Wednesday only to turn around and show signs of life again. This is a hammer that was preceded by a shooting star, and it does in fact suggest that we are trying to build up enough inertia to make a bigger move. I would point out that the 50-day EMA and the 200-day EMA both sit just below the current trading area, and on top of the 1.37 handle. Because of this, I think there is a certain amount of support underneath that is going to continue to push this market in an upward direction.
It is obvious that we have a lot of volatility here, and I think we are about to see an explosive move. If we can break above the highs of the last couple of weeks, this is a market that will go looking towards the 1.39 handle, perhaps even the 1.40 level after that. The 1.40 level will attract a lot of attention and headline noise. Anything above there will send the British pound into more of a “buy-and-hold” type of market going forward, allowing it to appreciate quite drastically. While we had seen a massive move from the bottom, it should be kept in the back of your mind that we are still at very low levels historically speaking.
The British pound will continue to be very choppy and very noisy, but I do think that we will go higher. With the Bank of England likely to raise interest rates by the end of the year, it does stand to reason that the markets will eventually find a way to go higher. The 1.42 handle is an area that has been resistance more than once and will more than likely be targeted.
On the other hand, if we were to break down below the 1.37 level, it is likely that we will go looking towards 1.36 handle. The 1.36 handle is a minor support level, followed by the 1.35 handle. The 1.35 handle is a massive support level and breaking down below there would change the overall outlook for the British pound, sending it much lower. That does not look likely to happen anytime soon though, especially with the US dollar losing its strength against multiple currencies, not just this particular one. With that being the case, I remain cautiously bullish.
