The British pound gapped lower to kick off the trading session on Monday with the massive “risk off” trade in effect.
British Pound
The British pound gapped lower to kick off the trading session on Monday as we continue to see a lot of questions asked about the potential expansion of conflict between the United States and Iran as well as the Israelis being involved. This could expand into something much worse, and it does look like there have been Iranian attacks in multiple different countries. So, this of course has a lot of people concerned.
With that being said, it makes a certain amount of sense that the US dollar strengthens as people run towards safety. It isn't so much that the British pound is a currency that people are afraid of, it has more to do with the fact that a lot of money will go into the US Treasury market or, in this case, as we have seen, it also looks as if it is going into the US stock market.
Policy Impacts and Market Sentiment
The market is going to continue to see a lot of volatility, but I think now that we are threatening the 200-day EMA with the breakdown, I think at the end of the day if we end up closing below the 200-day EMA you have to assume that more negativity is coming. In that environment, I would anticipate the British pound to go looking toward the 1.30 level before it's all said and done.
I do recognize that there would be support at 1.32 as well as 1.31, so I don't think it's a direct shot straight down, but I do recognize that there is a lot to be said about the potential negativity. Any rally at this point in time would be looked at with suspicion with the 1.34 level being a potential area of resistance and with that being the case, I think you have to understand that a market move to the upside has to be looked at with suspicion and perhaps as a potential opportunity to start selling again.
Over the longer term, I do think that the Bank of England will probably cut rates and that has a major influence on where we go next. The Federal Reserve is expected to cut rates as well, but they've been expected to cut rates for ages and the number of cuts and the timing of cuts continues to get pushed lower. So, with that, I think the dollar probably has a bit of momentum in its favor.