The British pound got slammed on Wednesday, crashing into the major support region just above the 1.34 handle. The size of the candlestick is something worth paying attention to, and it is also worth noting that interest rates have shot straight up in the air in America, after a failed thirty-year action. With that being the case, we have seen a lot of US dollar strength all of the sudden, as the US Dollar Index spiked to reach above the crucial 94.50 level. Because of this, it is very likely that we will continue to see a lot of downward pressure on other currencies, and now it looks as if the US dollar is on the precipice of becoming a major “wrecking ball” for the markets in general.
Looking at this chart, if we break down below the recent lows, it is very likely that the bottom can follow, especially if we go below the 1.34 handle. If we were to break down below the 1.34 handle, then I think that the British pound could drop another 400 points. That could send this market looking towards the 1.30 level, and now that we are threatening the “double bottom” that we had formed previously, it will be interesting to see whether or not we can continue to go much higher. Ultimately, this is a market that I think you need to pay close attention to as a major move could be coming. If that is going to be the case, then we will more than likely see a lot of momentum. I would not be surprised at all that this market will have cratered by the end of today. Furthermore, the fact that we are closing towards the bottom of the range suggests that we are in fact going to continue going lower.
If we do turn around and rally, it is not until we clear the 1.36 level that I would feel comfortable going long of this market. At that point in time, I would anticipate that we would see quite a bit of short covering, something that does not look very likely, but it is something that you need to pay close attention to. If that happens, I would anticipate a return to the 1.38 level above.
