The British pound went back and forth on Tuesday as we continue to hang about the 1.32 handle. This is an area that has attracted a lot of attention as of late, but quite frankly this has been such a negative market that it should not be a huge surprise to see that we are struggling to break down below it. Given enough time though, I do think that it is probably going to be a scenario where any bounce will be sold into.
What makes the Tuesday session particularly interesting is that the Federal Reserve is kicking off a two-day meeting, and will be having a press conference and statement on Wednesday afternoon. At this point, traders are trying to discern whether or not the speed of tapering is going to increase, which is de facto tightening monetary policy. In that scenario, you would probably have the US dollar strengthen quite a bit. Ultimately, at that point in time it is likely that we would see the British pound fall apart, and perhaps finally break down below the crucial 1.32 level. However, the alternate scenario is possible as well.
If Jerome Powell does not say anything about accelerating the tapering process, there will probably be a bit of a “relief rally” for all things against the US dollar. Whether or not that sticks could be a completely different question, but at this point I would not be surprised at all to see the market go looking towards 1.33 handle, maybe even the 1.34 handle after that. It is worth noting that the 50 day EMA hangs out just above the 1.34 handle, and is sloping lower. It is because of this that I think there will be a lot of selling in that area if we do get some type of relief rally, and I will be looking to pick up “cheap US dollars.”
If we do break down below the 1.32 handle, I think at that point in time it is likely that we will see the market try to go looking towards 1.30 handle underneath, which is my longer-term target anyway. The 1.30 handle is a large, round, psychologically and structurally important figure that will attract a lot of attention.
