- The analysis notes the British pound’s struggle at the former 1.32 support level, with technical confluence from the 50- and 200-day EMAs adding pressure.
- The outlook leans bearish as U.S. economic strength is expected to outpace the U.K.
The Tuesday session has been a bit rough for the British pound, although, really, at this point in time, we're still in an area that sees a lot of back-and-forth action. And I think you have to look at this as an area where we are trying to come up with some type of momentum so that we can start trading. We are at a major decision point, and it is worth noting that the 1.32 level had previously been significant support. So now that we've come back there and started to fail a bit, this suggests that the British pound is going to continue to shrink against the US dollar. It's also worth noting that the 50-day EMA and the 200-day EMA indicators sit just above. And I think you have to look at that through the prism of a market that also has a lot of technical confluence.
Bearish Drivers and Technical Confluence
At this point, I am bearish to the British pound. It's worth noting that the most recent bounce really had a lot to do with the fact that the Bank of England didn't cut rates, but the vote count was close. And that leads me and most other traders out there, I imagine, to believe that it's probably only a matter of time. While the Federal Reserve may or may not cut rates next Wednesday, even if they do, if the Bank of England is going to do the same thing, it doesn't change anything.
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Furthermore, it's very likely that the US economy is going to outperform both the United Kingdom and the European Union in the first quarter of next year based on leading indicators. That suggests US dollar strength. Quite frankly, people will want to invest in America, where they can find some growth. If we break to the upside and perhaps break the top of the candlestick from the Monday session, the 1.3350 level is the next area where I expect to see some trouble.
On the downside, the 1.30 level is obvious support. Anything below there, the pound probably drops towards 1.2750, but I think it takes its time. It's not like the United Kingdom is falling apart. It's just that the dollar is so strong. And it's worth noting that, in general, the pound, for the most part, has outperformed most of its contemporaries for the last two years against the greenback. And I don't know if that changes. It doesn't mean that it goes higher. It just means it doesn't fall as fast as some other currencies out there.
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