The British pound went back and forth Friday as we continue to hang right around the 1.20 level. The 1.20 level is an area that continues to see a lot of action, as it had previously been a major support level, and now “market memory” could come into the picture to offer resistance. The candlestick for Friday does suggest that we are a little bit confused, which makes quite a bit of sense that we have seen a relatively unchanged market.
If we break down below the lows of the Friday session, it’s likely that we could drop down to the 1.18 level to test previous support. On the other hand, if we break above the top of the candlestick for the day, then we might go looking to reach the 1.22 level, possibly even a 1.24 level over the longer term. The 1.24 level is an area that has been important more than once, and I think would be a massive stretch for the British pound to overcome. It is at that point that I think we enter a longer-term uptrend.
Interest rates in the United States have fallen, and that does help. However, if the Federal Reserve meeting on Wednesday ends up being extraordinarily hawkish, then it’s likely that we will see any rallies given up. That’s on Wednesday, so I think the next couple of days may be more or less sideways and difficult to overcome, so at this point in time, I think what we have is a situation where the next couple of days will be quiet. It’s not until we break significantly in one direction or the other that I could make an argument for a position, so I think you are better off simply sitting on the sidelines and waiting for a bit of confirmation.
You should be cautious with your position size, and it’s almost not worth trading unless we see some type of change in attitude. That change in attitude probably comes at the end of the Wednesday session. In fact, it’s likely that the Federal Reserve meeting will have the market held hostage for the next several days. With this, I think you are probably better off simply observing and keeping an eye on whether or not we break out one direction or the other.
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