The British pound has rallied during the trading session on Tuesday as Jerome Powell spoke in front of the Senate. That being said, the US dollar did take a little bit of a beating in general, especially against certain commodities like gold and oil. The British pound has been a bit resilient against the greenback over the last several weeks, even as other currencies have struggled. Now that we are closing out at the very top of the channel, this means that we are extraordinarily close to a bigger move.
If we can break above the highs of the trading session, I think that buyers will probably jump into this market and try to push it towards the 1.38 handle. The 1.38 handle has been resistance at the most recent peak of the channel, and I think it will continue to be an area that a lot of people pay attention to. Ultimately, if we can break above that level then it is likely we go looking towards the 1.40 level over the longer term.
Alternately, if we break down below the lows of the trading session on Monday, then it is likely that we will threaten the 1.35 handle. If we break down below the 1.35 handle, then the market is likely to break down towards the 1.34 handle and then given enough time the 1.32 handle after that. The 1.32 handle has been massive support recently, so therefore I would anticipate some type of reaction. That being said, if the US dollar continues to weaken against other currencies, it is obvious at this point in time that the British pound is probably going to lead the way. We are above the 200 day EMA which of course is very bullish, but it is not necessarily a given sign that we are going higher, because quite often we have what is known as a “throw over.” This is when markets jump over a trendline or a major moving average, only to turn things back around and go in the opposite direction. This is why I want to see the top of the Tuesday session broken in order to start buying. Once that happens, then I think at that point in time it will become increasingly obvious to the entire market of the British pound is probably going to be one of the best currencies down.
