The British pound initially fell during the trading session on Thursday but then found buyers to push it towards the 1.36 level. At this point, the market is trying to break out above the recent consolidation, and I think it has a reasonable chance. If we can break above the 1.3650 level, at that point in time I might be convinced that we are getting ready to make a bigger move. That being said, if we do get that bigger move, it is very likely that the British pound will be one of the better performers because not only has it been resilient, the Bank of England itself is sounding more hawkish than most of its competitors.
It is because of this that if you are looking to buy the US dollar, this is not the pair to do it in. You have interest rate noise coming into the picture, and then of course will continue to be a major problem. With both central banks being so hawkish, it does make a certain amount of sense that the British pound will be able to “hold its own.” In other words, if the US dollar does start to fall against most currencies, it most certainly will see a lot of momentum in this particular pair.
To the downside, if we were to break down below the 1.35 handle, it opens up the possibility of a move down to the 1.34 handle. This would be a very negative turn of events and could open up the 1.33 level after that. If we do get some of this breakdown that I am talking about, then I would anticipate that the British pound will have had its day and we will go back to running towards the US dollar, more likely based upon fear than anything else.
At this point, it is simply a matter of time before we break out of this little area, and we can start to place real trades. As things stand right now, it is more or less going to be a situation where we have to wait on the market to make up its mind completely, and therefore we can follow later. After all, this is a market that continues to see a lot of noisy behavior, but with both central banks being so hawkish, it does make sense that if the dollar is going to fall anywhere, it is going to be here.
