The British pound fell a bit on Monday to test the 1.3650 level. This is an area that has been important numerous times in the past, so it's not a huge surprise to see that the market would be attracted to this level again. At this point, if buyers step back in, it is likely that the 1.37 level above could be a bit of a target, and if we break above there it is likely that we could go looking towards the highs of the last couple of weeks. Obviously, there is a significant amount of resistance near the 1.3850 level, so it is not until we break above there that I think you get a bit of an “all clear” on the idea of holding onto this position.
To the downside, the 1.36 level should offer support, and as you can see, I have drawn a negative trend line on the chart that seems to be very important. The Friday candlestick was very negative, so it does suggest that we are going to continue seeing a little bit of negative pressure, but whether or not it sticks might be a completely different situation. The 50-day EMA above is going to cause a certain amount of psychological resistance, but we have sliced through it multiple times and it is going sideways, so that tells you we are probably more or less in a bit of a consolidation range.
At this point, the market is likely to continue seeing a lot of volatility, and the US dollar itself will be worth paying close attention to. Commodity currencies seem to be doing better than the British pound, but it is worth noting that the Bank of England is primed to raise interest rates between now and the end of the year, and if that is in fact what happens, that will be bullish for British pound overall. Furthermore, the US dollar continues to struggle, but we have a lot of issues at the end of the week coming out as the jobs number will be released. Because of this, it will probably be very choppy and noisy during the course of the week, but once we get to Friday, we could get more of an impulsive move in one direction or the other.
