The British pound rallied significantly on Tuesday, breaking above the 1.35 level again. That being said, even though we have rallied significantly, we have not broken free of the resistance in this area, although closing at the very top of the candlestick certainly helps. Just above, we have the 200 day EMA sitting at the 1.3583 level, and it is rapidly coming in focus.
When you look at this chart, you can see that the 50 day EMA sits underneath and is starting to curl higher, so we are essentially being “squeezed” in this general vicinity. The market will eventually break out of this range, and when it does, it will become much clearer as far as where we are getting ready to go longer term. It certainly looks as if the buyers are starting to take over, but at the end of the day we have been in this general vicinity before.
To the upside, if we do break out, then obviously breaking above the 200 day EMA will be a massive barrier to overcome and should bring in fresh buying. At this point, the British pound becomes more of a “buy-and-hold asset.” On the other hand, if we turn around and break down below the 50 day EMA at the 1.3425 handle, then the market could very well drop back down towards the 1.32 level. What is interesting is that we had such a massive bounce at the end of the year, and now we have to determine whether or not that was something that was real, or if it was simply short covering. While we do not have that answer quite yet, the candlestick for the Tuesday session certainly suggests reality and not so much short covering.
Obviously, the US dollar itself will have a lot to say about this, and then we have the jobs number coming out on Friday which will move the greenback quite significantly. That being said, the market could be very noisy over the next couple of days, but by the time we get through the end of the week, we might have some answers when it comes to the bigger move. Until then, I would be a bit cautious but certainly it looks as if we are starting to tilt to the upside again.
