The British pound went back and forth on Friday to form yet another sideways and relatively neutral candlestick. This does make sense considering that both central banks are rather hawkish at the moment, which is in drastic contrast to the other central banks around the world. The 200 day EMA sits just above, while the 50 day EMA sits just below. In other words, there are fundamental and technical reasons to think that this is an area where we would be very interested in trading.
Markets continue to see a lot of questions about geopolitical concerns, monetary policy, and everything else in the world. With that being the case, the market is more likely than not to continue being more of a short-term back-and-forth type of situation, as we have so many technical and fundamental indicators working against each other. Having said that, I do have a couple of clear areas where I would be interested in placing the trade. If we were to break down below the 1.35 handle, then I think we could go looking towards 1.34 level. After that, we could be looking at a move down to the 1.32 handle. This would almost certainly be a “risk off” type of trade.
That being said, I believe that the fact that these two central banks are so essentially evenly matched when it comes to the anticipated rate hikes that it is going to be difficult to see a big move here unless there is some type of sudden panic. You will probably get more mileage out of something like the NZD/USD pair, where the divergence is much easier to see.
On the other hand, if we were to break above the highs on the Thursday session, then it is very likely that we could go looking towards the 1.3750 level above. If we can break above there, the market is likely to go looking towards the 1.3850 region. I do think at the very least we are going to have a lot of noisy behavior, so you should keep your position size reasonable until we get a bit of clarity. I am not overly confident that we are going to get it anytime soon, so patience will be needed.
