The British pound gapped higher to kick off the trading session on Monday, starting the week on the right foot. That being said, we could not break above the top of the range for the Friday session, so it will be interesting to see whether or not we can continue to build up momentum. Furthermore, we have plenty of noise just above that could come into the picture to keep the market down, especially near the 1.3350 area, where we see a lot of wicks, a clear sign of struggle. Furthermore, if we were to break above the noise in that general vicinity, the market is likely to go looking towards the 1.34 handle.
The 50-day EMA sits at the 1.35 handle and is crashing lower. I think the 50-day EMA could be a significant problem for buyers to overcome, and I would be a seller of signs of exhaustion after a short-term bounce, especially as the British pound has been so stuck. The US dollar has been like a wrecking ball for a lot of currencies, and I think that will continue to be the case in this market.
If we break down below the bottom of the candlestick from Friday, that opens up the floodgates, sending the British pound down towards the 1.30 level. That does not necessarily mean that has to happen, but it clearly is a possibility. Furthermore, it is also worth noting that we are in a major downtrend, so that is something that you need to keep in the back of your mind. The market continues to see a lot of noisy behavior in general, so at this point I think it is only a matter of time before we roll over again. That being said, interest rates in the United States have started to drop, and that is working against the greenback in the short term. Longer term, though, is also worth noting that the United Kingdom has to deal with the fact that the economy is slowing down, and the Bank of England is very likely to continue to be very loose with monetary policy, perhaps even expand it. At the same time, the Federal Reserve is looking to tighten, so it is likely to continue to favor the greenback on the whole.
