The British pound initially plunged lower on Wednesday to break down below the 1.32 handle. The 1.32 handle is an area that has seen a little bit of strength as of late, and I think it is worth noting that we have turned around to form a bit of a hammer. The hammer is a reversal candlestick, and I think we could get a little bit of a boost. Nonetheless, I think this is on a short-term basis, and it is not something that I would get overly excited about.
The British pound has been sold off quite drastically as of late, so I think that a turnaround is probably a bit of a stretch at this point, due to the fact that the trend is most certainly ensconced in the market. However, a bounce does make a little bit of sense, just due to the fact that we are oversold. I see a lot of wicks on charts extending all the way to the 1.34 handle, so I think at this point in time it is more likely than not going to be a scenario where we are looking for some type of exhaustion above in order to start shorting. In fact, I think a couple of days’ worth of rallying like we have seen in the Australian dollar makes the most sense.
This does not mean that I am willing to try and play the bounce, rather I am simply waiting for signs of exhaustion after the bounce in order to take advantage of “cheap US dollars.” The market has been in a downtrend for a while, mainly due to the fact that the Federal Reserve is looking to taper monetary policy, while the Bank of England is nowhere near tightening anything. I believe that the 1.34 handle above is massive resistance, so it is not until we break above there before I would consider any opportunity to go long, which is something that I do not anticipate seeing. The 50 day EMA is reaching towards that area as well, and sloping lower. I think that would also offer a certain amount of technical resistance as well. Simply sitting on the sidelines and waiting for an opportunity to start selling again is my plan, and I plan on sticking to that strategy.
