The British pound has rallied significantly during the course of the trading session on Thursday to reach close to the 1.40 handle above, which is a large, round, psychologically significant figure. Ultimately, the market is likely to continue to see buyers get involved on dips from what I can see, but if we cross back over the 50 day EMA, it is likely that the market goes looking towards 1.37 handle. At that level, the 200 day EMA comes into the picture.
At this point in time, I think this is a market that will continue to see a lot of choppy behavior, but at the end of the day I think the British pound will answer a lot of questions if we can continue to break above the 1.40 handle. If we cannot, then it will show that the market is favoring the “risk off trade”, and thereby the greenback itself. At this point, the market is more than likely going to pay quite a bit of attention to the 10 year yield and monetary flows into the bond market. If we continue to see money go looking to bonds, then it will by extension strengthened US dollar.
At this point, one thing that could be coming into the picture is the Delta variant differential, as it appears that it is picking up in the United States while the United Kingdom is getting away from it. That should favor the UK short term, but longer-term questions have to be figured out over time. It is worth noting that the most recent selloff sent this market down below the 200 day EMA, but we have recovered it, in what would be most likely thought of as a potential sign of major strength. I do think that regardless of what happens next, we are going to see a lot of choppy behavior and there is probably a lot to be said so the fact that the US dollar has been a bit oversold.
The size of the candlestick for the trading session on Thursday is a good indicator that there are a lot of buyers underneath, so all things being equal it is likely that this is a market that still has some things to work through, but it certainly is making an argument for an attempt to get back towards the highs at the 1.42 handle.
