The British pound rallied a bit Tuesday, which should not be a huge surprise considering that the 1.32 level has been so important as of late. It is also worth noting that we are heading towards the end of the year so it is going to be difficult to see this market take off for any significant amount of time, because there just is not much to get excited about. Most traders are focusing on the holidays and less on the currency markets. We had also fallen somewhat relentlessly for several weeks, so to form a basing pattern in this area does make a certain amount of sense, if for no other reason than to think that perhaps we are going to try to recover a bit.
If we were to break down below the 1.32 handle on a daily close, then we could go looking towards the 1.30 handle, but that would take quite a bit of effort. I think it is more likely that we will go looking towards the 1.3375 level, an area that has been important more than once, and now that we have the 50 day EMA racing towards it, it looks to me like we are more than likely going to see a lot of resistance above and I think a lot of noise.
This is a situation where I will let it rally a bit, and then sell signs of exhaustion. I do not necessarily want to put a big position on, because if the headline crosses the wires during holiday trading, it can send the market straight up in the air or straight through the floor. I have seen runs in even boring pairs like the EUR/USD of 300 pips based upon ill-timed news. With this being the case, the market more than likely will continue to see a lot of chop, and if you can employ some type of range-bound system, perhaps using a stochastic oscillator or something like that, you may find some success on shorter time frames. As far as a bigger trade is concerned, I think that is probably a discussion for early next year, maybe after the first Non-Farm Payroll number.
