The British pound rallied early on Monday but hasn’t been able to hang onto gains very easily, as UK economic numbers have disappointed recently.
GBP/USD
The British pound has rallied a bit during the trading session on Monday to break above the 50-day EMA, but it continues to see a lot of resistance just above there. If the market were to continue to go higher from there, the 1.36 level will be the target. It is worth noting that the 1.35 level has offered support in the past couple of times, so we are definitely at an inflection point.
This is an interesting pair to watch for me because, while the US dollar is softening in general over the last several months, the reality is that recently we have seen the British pound really suffer at the hands of the Bank of England likely to be loose with monetary policy, or at least having to loosen monetary policy as economic indicators continue to get worse.
Fading Rallies Amid Monetary Policy Shifts
With this, I think the British pound continues to see a little bit of a headwind here. Although I do not necessarily think that it collapses, it would not surprise me at all for the pound to continue going lower. At that point, you could see the market go down to the 200-day EMA at the 1.3364 level. Anything below there then kicks off a much deeper move to the downside.
Overall, I think this is a market that will be very choppy and very noisy, but I think the easiest way to play the British pound currently is to simply fade rallies that show signs of exhaustion. We could travel all the way back to the 1.3750 level and simply revisit consolidation, but really, I think the pound is probably going to remain under pressure at least for a while. That does not mean it cannot rise for the next day or two; I just look at that as an opportunity to buy cheaper US dollars.