The British pound fell a bit on Friday as we continue to see plenty of downward momentum. The markets will be paying close attention to the interest rates coming out of America, because if they continue to strengthen, it is likely that this pair will continue to drop. If we see interest rates start to fall, then it will more than likely help the British pound try to recover against the greenback.
To the upside, the 1.34 level is an area that I think offers significant resistance, but we cannot even get above the 1.33 level on a daily close to start reaching towards that area. At this point in time, it seems like every time the British pound tries to rally, sellers continue to jump into the market. The British pound has been sold off quite drastically, so the fact that we have seen so much in the way of choppy behavior over the last couple of days makes quite a bit of sense. I think we will continue to see that be the case for a while, so with that in mind, I think you have to play this market from the short-term perspective more than anything else.
If we somehow broke down below the hammer from Tuesday, then the market is likely to go much lower, perhaps reaching down towards the 1.30 level. That is my longer-term perspective on this market, but we may need to bounce in order to build up enough momentum to finally make that move. After all, you need to find a bit of “value” in the greenback in order to buy it. On the other hand, if we were to somehow break above the 1.34 handle, then it is likely we will go looking towards the 1.35 level. The 1.35 level being broken to the upside would also have this market ripping through the 50-day EMA, extensively changing the longer-term trend. With that being said, the market is negative-looking still, despite the fact that every time we have fallen, we have seen a bit of a fight. Expect plenty of volatility, but pay close attention to gilts and US bond markets to see what type of interest rate moves we are making, which give us an idea which currency to favor.