The British pound rallied significantly on Friday only to slam into a major downtrend line. Because of this, the market is likely to continue seeing little bit of downward pressure, but I would also point out that the market has broken above the top of the shooting star from the previous session and the crucial 1.37 level. Beyond that, we are also above the 50-day EMA, as well as the 200-day EMA.
The size of the candlestick for the trading session on Friday is strong, and the fact that we are closing towards the top of it does suggest that we could continue to see buyers. If we break above the top of the candlestick, it would obviously be a very bullish sign, opening up the possibility of a bigger breakout. By doing so, the market would clear the 1.38 handle, and more than likely go looking towards 1.39 level. This is a market that I think will continue to see a lot of volatility, but the fact that we are doing everything we can to rally suggests that we are either going to break out or break back down.
The US Dollar Index is showing signs of struggle, and that would show itself over here as well. What's interesting about the US dollar right now is that it is not moving in the same direction in all currencies. Typically, you will see the European, Pacific, and commodity currencies all move in the same direction against the US dollar, but we are starting to see winners being picked and chosen.
If we break down below the bottom of the shooting star from the Thursday session, I think at that point the British pound could struggle and go looking towards the 1.36 handle. After that, the market would go even lower, breaking down completely. This would be a major “pro-US dollar move” just waiting to happen around the Forex markets, and you could see a lot of opportunity in one direction in multiple currency pairs, not just this one. The British pound has shown itself to be strong, but we still have not cleared enough of these resistance areas to see momentum continue in this market and push it higher.
