- During the trading session on Monday, we have seen the British pound break down below the bottom of a well-defined channel that we have been in for some time.
- Because of this, I think you have a situation where we may have a little bit more of a correction than originally thought.
- The 50 Day EMA has been broken to the downside, which of course in and of itself will attract a lot of attention.
The market breaking below the bottom of the channel is a minor sign of negativity, but I think ultimately you still have to look at this through the prism of the longer-term charts, which suggests that sooner or later the buyers may return. Interest rates in the United States have risen in the bond markets during the session, which of course makes holding the US dollar little bit more interesting, as we will continue to see a lot of volatility, but at the end of the day, you are paid a bit more to own US dollars, around the world, not just here. Remember, this is a “relative strength play” when it comes to currencies.
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We are below the 50 Day EMA which in and of itself is somewhat bearish, but I also recognize that we have a situation where traders are going to look at this through the prism of whether or not they can find some type of value. The 1.33 level would be an area of interest I suspect, followed by the 1.31 level which is where the 200 Day EMA is currently residing and rising. Granted, I only put so much emphasis on moving averages, but I do recognize that there are enough traders out there who will watch them that they do have a little bit of a “self-fulfilling prophecy.”
Ultimately, I think this is a market that sooner or later will attract buyers, but you may want to step out of the way for the time being, because it could give you a little bit of trouble here. If we were to turn around and break above the 1.3550 level, then I think the buyers will have proven themselves in the short term, perhaps driving the market back to the 1.38 level.
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