The British pound spent most of the day on Monday falling, as the area around the 1.35 level continues to be important. This is an area that has been both support and resistance, so it should not be a huge surprise to see it offer resistance to kick off the year. However, we did bounce a bit from the bottom of the candlestick so at least that is a mildly positive sign. The 50 day EMA sits just below the bottom of the candlestick as well, so that could also be coming into the picture.
When you look at this chart, despite the fact that we did get a little bit of a bounce late in the day, and despite the fact that we had such a strong bounce over the last couple of weeks, the reality is that we are still very much in a downtrend when it comes to this pair. Also, you probably need to ask yourself if the last two weeks of 2021 were simply short covering or not. There is that possibility, and that would have a major influence on how we behave. At this point, if we can break down below the 50 day EMA, that would be the next major hurdle for sellers to overcome.
With the jobs number coming on Friday, one would have to think there will be a certain amount of volatility and choppiness in this pair just waiting to happen, and if that is the case, then the first thing you need to do is keep your trading position somewhat reasonable, expecting a lot of chop. To the upside, if we were to take out the highs of last Friday, then it is possible we could go looking towards the 200 day EMA above, currently parked at the 1.3584 handle.
I do not expect major moves between now and the end of the week, but what I do recognize is that this area is important, and despite the fact that we have had a really huge move over the last couple weeks, we are still very much in a downtrend. Longer term, this is probably an area where a lot of sellers will be interested. It should be noted however, that the British pound recovered quite a bit stronger than many other currencies did against the greenback late in the session.
