The British pound initially fell during trading on Thursday but found enough support just below the 1.32 level to attract buyers. By doing so, it looks as if the market is simply trying to recover after a major selloff. Because of this being the case, I think what we have is a scenario where buyers will continue to try to pick this market up, but this is probably somewhat short-lived. The market has been grinding lower for a while, but it has lacked anything close to significant momentum. With that in mind, I think we probably go looking towards higher levels in order to find more value in the greenback.
I do not necessarily think that this market is going to shoot straight up in the air, but it is oversold by just about any metric that you use. Because of this, you have to wait for an opportunity to start shorting after a significant bounce, because chasing the trade down here makes little to no sense. The market continues to see the 1.32 level is short-term support, but I do not think there is anything particularly important about this level. The 1.34 level above is significant resistance that I think will be difficult to take out, but if we did then obviously you have to stand up and pay attention.
We could take off to the downside, and if we do that I think it just opens up the possibility of a move to the 1.30 handle. The 1.30 handle is a large, round, psychologically significant figure that will attract a lot of attention, and therefore I think that area should offer a significant bounce. In fact, it could even be the bottom of the overall selloff, but it is early to start talking about that. All things been equal, this is probably more about the US dollar than anything else. Because of this, I am looking for an opportunity to continue the overall downtrend, but I also recognize that we are overextended. The overextension is something to pay close attention to because markets do not go in one direction forever. Regardless, I do not have any interest in buying the British pound anytime soon, as the Bank of England continues to be ultra-loose, while the Federal Reserve is tapering its bond buyback purchasing.
