The British pound initially pulled back to break down below the 1.33 level but found buyers to come back in and push to the upside. At this point, the 1.34 level is the beginning of significant resistance that extends to the 1.3450 level. That level I think is going to be difficult to break above, thereby opening up the possibility of a move towards the 1.35 handle.
It is not until we break above the 1.35 level that I will be convinced of the efficacy of the British pound, because even though we have seen a lot of bullish pressure over the last 24 hours, we still have to keep in mind that the central bank scenario in both countries is relatively stable, meaning that the Federal Reserve is most certainly going to be hiking rates, while the Bank of England will be doing the same. In other words, there is a lot of “push and pull” in this market. However, we also find ourselves in the midst of a very significant amount of concern, which generally helps the US dollar overall.
As long as we have a lot of concern out there, it does drive up the value of the US dollar in general. That being said, the market has quite a bit of noise just above, and if we continue to see the area cause a bit of struggle, then it is likely that we are simply going to consolidate overall. The market will continue to see a lot of volatility, as we have a lot of headline risks out there, and it is possible that we may simply go back and forth in the same general vicinity.
The 1.33 level continues to be an area of support, but if we were to break down below there, it opens up the possibility of a move to 1.32, something that I expect to see sooner or later. With so many different moving pieces out there, this is a pair that I do not like trading at the moment, but I recognize that the best thing you can do is simply trade with smaller positions than usual. The market also has a bit of a risk appetite equation attached to it, meaning that if we get a lot of “risk-off trade”, it is very possible that the British pound will fall.
