The British pound started the week off poorly, as a massive gap started the week in chaos. However, the market has since turned things around, and it looks like the GBP/USD pair will be testing resistance soon.
GBP/USD
The British pound had gapped lower to kick off the trading session on Monday but has turned around to bounce quite significantly. This was a move that coincided with interest rates falling in the USA.
By doing so, we find ourselves in the possible area of threatening a crucial level in the form of 1.35. 1.35 is an area that's been important multiple times in the past and recently has served as our ceiling.
Interest Rate Differentials and Potential Breakout Scenarios
The interest rate differential situation in this pair is not as vast and stark as it is in other places. So I'm not as concerned about the swap here, but what I do recognize is that if there is a serious concern when it comes to fear, then it makes sense that the US dollar would strengthen even against the British pound which in and of itself has been fairly strong in comparison to some of its contemporaries.
So, with this, I think you've got a situation where we remain the sideways market that we've been in, but if we were to break above the 1.3666 level, then I think you see a bigger breakout.
In the short term, I think you're just looking at this as a significant area that you can watch for signs of exhaustion to start shorting or signs of a breakout to start buying. We are at a major inflection point and that is why I'm watching the British pound very closely at the moment but sitting on my hands.