The British pound has been very strong as of late, and it looks like we are going to continue to see more of the same soon. However, you will have to keep an eye on the ten-year rates in America.
GBPUSD
The British pound found a little bit of choppiness during the trading session on Wednesday as we continue to see a lot of questions asked about interest rates around the world. The US 10-year yield did fall during the day initially, but it turned around to show some signs of life. We are below that crucial 4.30 level and could be in an area where I think a lot of people will be watching very closely to see what happens next with the US dollar.
A lot of what you are seeing comes down to hope of some type of Middle East deal. The Americans and the Iranians look as if they are going to start talking again, and if that ends up being the case, that obviously gives people a lot of hope for good news. Good news generally will drive bond yields lower, and that in and of itself could have people looking to get short of the US dollar.
Technical Levels and Yield Influence
I will be watching this very closely because quite frankly this is a market that I think remains right on the precipice of a fairly large move. If we can break above the 1.36 level, I think at that point you would have to favor the British pound for a move to the 1.38 level.
A breakdown from here almost certainly will find support near the 1.34 level where the 50-day EMA currently resides. Anything below there starts to question the entirety of the uptrend. Follow those 10-year yields; if they continue to shrink in America, that will give you a bit of a heads up as to where the US dollar could go. Stronger yields of course help the dollar, or conversely weaker yields will help other currencies like the British pound. That should be your clue.