The British pound initially fell on Monday to test the 1.30 handle before bouncing and showing signs of life. The candlestick for the trading session on Monday ended up forming a bit of a hammer, just as it did during the day on Friday. At this point, the market breaking below the lows of the last couple of days would be a very negative sign, perhaps sending this market to go to the 1.28 handle.
It is worth noting that the longer-term chart shows a significant “zone of support” that extends from the 1.30 level down to the 1.28 handle. Because of this, I believe it will be very noisy and it is worth noting that if we do break down from here, it is probably going to be a grind lower than anything else.
The candlestick suggests that we could get a certain amount of upward momentum at this point, and I think what we have is a situation where the market is more likely to bounce than not. That being said, I do not think that a bounce is an excuse to start buying; I think it is more or less going to be a situation where you are fading short-term rallies that show signs of exhaustion unless, of course, we get a major breakout to the upside.
If we were to break above the 50-day EMA, then it would be a very bullish sign and it could open up the possibility of a trend change, but we are light years away from that happening at this point. The US dollar continues to strengthen overall, and if we do get a little bit of a pullback in the value of the greenback, that will only confirm that the British pound will start to rally. We have been in a downtrend for quite some time, and it makes sense that the market will continue to look for shorting opportunities. This is a market that I do not have any real interest in trying to buy anytime soon. Keep in mind that a bounce can look like a reversal, but we have a lot to work through in order to confirm a complete change in attitude. It is difficult to imagine a scenario where things change anytime soon.
