The British pound pulled back a bit on Tuesday to show signs of exhaustion and the 1.26 level. The 1.26 level is an area where we have seen selling pressure previously, so it’s not a huge surprise to see a bit of trouble in that area. That being said, we did bounce a bit from the bottom of the session, so it does suggest that perhaps we are trying to see a lot of buyers step in and pick this market.
However, that does not mean that the trend is going to change anytime soon. The 1.25 level has offered a little bit of support during the day, but it might be more psychological than anything else. It’s obvious that there has been a lot of noise as of late, and this has been a nice rally. However, the market bouncing the way it has does suggest that it might have been oversold previously. This is a situation where I am more than willing to start selling on signs of exhaustion.
On the other hand, if we were to break down below the 1.25 level, then it’s likely that we will continue to go lower, perhaps reaching the 1.24 handle, and then the 1.22 handle after that. This is a market that will favor the US dollar longer-term due to the Federal Reserve and its tight monetary policy. While other central banks around the world are starting to talk about tightening, the reality is that the Federal Reserve is far ahead of the rest of them. Beyond that, risk appetite will continue to favor the US dollar as well, as there are a lot of concerns around the world. The US dollar is favored in these times, especially as interest rates have spiked as of late. That being said, the last couple of days have seen yields drop a bit, so it does take some of the shine off the US dollar, but that is more or less going to be a short-term situation. The 50-day EMA is sitting below the 1.28 level and grinding lower at this point. That should also offer dynamic resistance, so keep that in mind as well. We are in a downtrend, and that has not changed despite the balance.
