The British pound has rallied a bit during the course of the trading session on Thursday but has given up about half of the gains. The markets of course are very sensitive to the central bank announcements, and with that being the case the Bank of England raising interest rates from 0.1% to 0.25% sent the British pound much higher. However, this was probably more along the lines of a “repricing of the British pound.”
Now at this point in time it is likely that we will continue to see a lot of noise, because the rally was not a huge surprise, but the fact that we gave up so much of the gains tells me that there is not a lot of underlying strength or belief in the British pound. The British pound has to deal with the fact that the omicron variant is raging through the United Kingdom, and of course traders out there continue to punish the British pound for that reason. It is also worth noting that the 1.34 level continues to be a major area of interest, as the area previously had been support. The 50 day EMA is racing towards it, and therefore it is very likely that it will offer a bit of a headache for buyers.
To the downside, the 1.32 level would be an area of significant support, so therefore I think at this point in time we are more likely than not to see a bit of support and buyers in that general vicinity come into play. If we were to break down below there, then it is likely that the British pound will fall apart. All things been equal, this is a market that could very well go back and forth in the 1.32 to 1.34 range between now and the end of the year, as traders continue to see a lack of liquidity as a major problem. The end of the year tends to be very noisy, so you need to be cautious about the position size, as a sudden spike in the market in one direction or the other can cause a lot of problems. Expect noisy and choppy behavior in general, so this is probably the range that we are going to be paying the most attention to between now and the new year holiday.
