The British pound has reversed quite massively during the trading session on Thursday, recapturing the 1.20 level as traders are now starting to focus on the jobs number coming out for the Friday session. At this point, the market is likely to see a lot of resistance, perhaps near the 1.22 level. This is an area that previously had seen a bit of selling pressure, and of course, we also have perhaps the possibility of a bit of short-covering causing the recovery.
At this point, it’s more likely than not going to be a situation where you are waiting for signs of exhaustion that you can start shorting, because the US dollar is extraordinarily strong, and should continue to be so going forward. Because of this, the market then will more than likely continue the longer-term downtrend, and once we get the jobs number out of the way one would think that there should be a bit of continuation.
If we were to turn around and break above the 1.22 level, then it’s possible that we could go looking to the 50 Day EMA which is at the 1.24 level, which is also an area where we have seen interest in both directions. In other words, there should be a bit of “market memory” at that level, which could cause some issues as well. At the very least we need to get above the 1.24 level to take any rally seriously. I do believe at this point we have a situation where the market is going to continue to see rallies sold into, but that might be a tall order heading into the jobs number. The real tell on where we are going next will probably show up at the end of the day on Friday, as by then people will show whether or not they are willing to hold British pounds or US dollars heading into the weekend.
The real trade probably shows up on Monday, because even if we were to turn around the entire trend, you have plenty of time to get involved. A trend change is a process, not something that happens immediately unless there’s some type of external factor. We do not have an external factor this point so patience will be key.
