We are closer towards the top of the consolidation area at the moment, as we are looking to see whether or not the market can move further, or if we are still stuck in the same region.
GBP/USD
The British pound has gone back and forth during the trading session on Tuesday as we are trying to figure out where we are going next. Ultimately, this is a market that given enough time will have to make a bigger decision. We are closer towards the top of the consolidation area, so I think it makes sense that we would pay attention to the 50-day EMA, which has offered resistance previously and then the 1.35 level. Above there, we have the 1.3575 level which could offer a little bit of resistance as it was a swing high previously.
The Role of Risk Appetite and Inflation
I think at this point, you have to ask the question whether or not the risk appetite is going to be more risk on or if we are going to see the market start to fall apart in risk appetite terms and therefore the US dollar pickup strength. I certainly think that there are a lot of concerns out there when it comes to what happens next in Iran and other places, so with that, I still favor the downside.
But I suppose a simple pop higher, and signs of exhaustion are really what I need to see. We kind of saw that towards the end of the day, but it’s not enough for me to get overly excited. Ultimately, I do think that the inflationary headwinds coming to the UK via energy prices may cause the Bank of England to be more hesitant to cut. So with that, I think this is a developing situation. I’m really watching the 1.3575 level because if we break there, then I think we will recover.