The British pound fell hard on Friday to break down below the 200-day EMA. One of the things that grabs my attention rather quickly is the fact that we have broken down below the bottom of two shooting stars in a row, so that does suggest that we are perhaps going to see more selling pressure. The 1.3550 level has offered a certain amount of support, but I do think it is probably likely that we will try to test the bottom of this candlestick. If we do break down below the candlestick from the session on Friday, it could open up a move to the 1.35 handle.
The 1.35 handle is crucial, not only due to a psychologically and structural situation, but the fact that the 50 day EMA is flattening around that same level. The 50 day EMA is an indicator that a lot of people will pay attention to, so if we break down below there it is likely that we could break down quite drastically. At that point, I think we will probably see this market drop all the way down to the 1.32 handle more than anything else. This would probably coincide with a massive move higher in the US dollar overall, and a continuation of the nasty “risk off” attitude that we have seen for quite some time. There are a couple of things we need to pay attention to, mainly the stock markets and the bond markets. If we continue to see a run towards safety, this is a market that could get hit rather hard.
It is worth paying close attention to the idea of whether or not the British pound will continue to be a bit of an outlier. For the longest time, the market has been rallying, but this could be the beginning of something more serious. This is especially true considering that the US dollar has shown itself to be so strong and the British pound had been rallying due to the idea of the UK economy reopening, as well as the fact that the Bank of England is ready to raise interest rates. However, this is starting to look more and more like a false breakout from the downtrend line of the overall channel. Pay close attention to the candlesticks over the last three days, because depending on which way we break, that should send this market in one direction or the other for a bigger move.
