The British pound went back and forth on Tuesday as we continue to see a lot of volatility. It will be interesting to see how this plays out, because we have had such a significant bounce from the 1.34 level, not only on Friday but also on Monday. Whether or not we can continue to see momentum to the upside is a completely open question at this point, but if we break above the top of the candlestick for Tuesday, then that kicks off quite a bit of momentum to reach towards the 1.37 handle.
The Bank of England has decided not to taper bond purchases in the short term, and that has sent the British pound reeling. However, we have formed a bit of a “double bottom”, and at this point it would be a very interesting place to get involved to the upside, albeit with a small position. This is because the 1.35 handle is an area that captures a lot of attention on longer-term charts, and I think essentially what we are seeing is a 100-point support barrier. This is why it is so important to pay close attention to that area. This is why if we were to break down below the 1.34 handle, then we will probably collapse to reach down towards the 1.30 handle.
On the other hand, if we were to break above the 1.37 level, it is very likely that we could continue to see this market go much higher. This would be a general “anti-US dollar move”, so you should be paying attention to other charts at the same time. Even if we would break out of this point, I need to see the US dollar falling against multiple currencies to get excited about getting long here. The market will obviously be very noisy, but that is typical in this type of setting. I do believe that we could recover, and this will be especially true if the Bank of England signifies that we are going to eventually see tapering out of London. I look at the candlestick for the trading session on Tuesday as being a bit of a “binary trade” that is trying to kick off, giving us a trade to the upside or lower, depending on which side of the candlestick we break.
