The British pound initially fell rather hard on Friday to reach down towards the 1.3450 handle before turning around and showing signs of strength. The daily candlestick ended up being a hammer, and we are seeing hammers pop up in dollar-denominated contracts everywhere. Because of this, we could very well see the US dollar roll over, and then by extension the British pound recover. This is not to say that the British pound will necessarily be the most advantageous currency, just that we clearly are seeing the market try to support itself.
It is worth noting that we tried to recover and recapture the 1.35 handle, although we have stopped just short of actually accomplishing that. Nonetheless, we have a nice hammer that has formed, and that will attract a lot of attention. If we can break above the 1.35 handle, then it is likely that we will go looking to make some type of recovery toward the 1.36 handle. Whether or not we can go higher than that might be a different story, but a lot of this comes down to the greenback.
At this point, it should be noted that the 1.35 level has been significant support multiple times, just as it had been significant resistance. In other words, we are at a major inflection point on the charts, so I think that we will probably have a certain amount of questioning here. If we break down below the bottom of the hammer, that would obviously be a very negative sign, reaching down towards the 1.3250 level rather quickly. This is a market that I think eventually will find plenty of momentum given enough time, and at this point we need to pay close attention to the idea of whether or not the Bank of England is going to tighten in the next few months. They failed to do so early in the week but did leave the door open to do it rather soon. If we can take out the candlestick from the Thursday session, then I think the market could really start to take off. However, I think at the very least, we are likely to see a bit of a bounce.
