The British pound shot higher on Wednesday as we reached towards the 200-day EMA. This obviously is a very important indicator, but at this point I think it is likely that we are sitting on the sidelines in order to pay close attention to what happens with the Bank of England. The Bank of England meets on Friday and will have an announcement that the world will be paying close attention to. It is anticipated that they are going to raise interest rates by 25 basis points, but whether or not they are going to continue tightening is a completely open question.
If they are more hawkish than anticipated, it is likely that we could see a continued rally in the British pound, but I have concerns that this could be a “buy the rally, sell the news” type of situation. Ultimately, there is a lot of resistance just above, but it is also worth paying attention to the fact that we have seen so much momentum. At this point, I do not necessarily feel comfortable putting a lot of money into this market in either direction. We are still technically in a downtrend, but if we can break above the 1.3650 level, I think it will all but seal the deal. I think the only thing you can probably count on is a lot of volatility. That being said, it is likely that we will see a lot of volatility around the world, so I do not know how this currency pair is going to be any different. The 50 day EMA currently sits below the 1.35 handle and could offer a bit of support. This is why if we break down below the 1.35 handle, the market will go looking towards the 1.34 level.
It is worth noting that the last three candlesticks have been rather bullish and have closed towards the top of the overall range. That being said, it certainly looks as if we have more momentum to the upside, but today should be rather telling whether or not we can truly continue. This is a market that I might be more comfortable using as a barometer for British pound strength against other currencies.
