The British pound rallied rather significantly on Wednesday as we continue to break out to the upside. Not only have we broken through a major downtrend line, but we have also broken above the 1.37 level in what has been a very strong showing. Because of this, it is very likely that the British pound will continue to attract a lot of attention, as the greenback itself continues to get sold off against most currencies. With that in mind, it does make a certain amount of sense that this pair continues to attract money not only due to the momentum, but the fact that it is very likely that the United Kingdom will be one of the first major economies to break out of this Covid cycle.
With this being the case, it does make sense that money would flood into that country as the central bank will almost certainly have to do something about inflation. Furthermore, Jerome Powell did sound a little bit more dovish than anticipated when speaking in front of Congress, so that should be kept in the back of your mind as well.
Regardless, this is a market that has obviously changed its overall tune, and at this point in time I like the idea of buying dips. Those dips give us an opportunity to pick up value along the way, but I recognize it will not necessarily be the easiest trade because we are going to continue to see volatility in markets that are not sure what to do with themselves. That being said, I do not want to short this market anytime soon, and I would need to see a break back down below the 1.35 level for me to get bearish. At that point, I could consider shorting it, but it would also have to be a situation where the US dollar is picking up strength everywhere. I do not necessarily see that happening very easily, but anything is possible at this point.
Keep your position size reasonable, because it is likely that we will continue to see a lot of choppiness and dangerous trading, but at the end of the day this is a market that certainly looks bullish and I would not bet against it anytime soon.