British pound falls again to test support on Tuesday
The British pound fell during the trading session on Tuesday to reach the uptrend line, and the 1.35 handle. Ultimately, the market breaking down below there could send this market to the 1.33 handle, and beyond. After all, if we were to break down below that level it’s likely that the market could unwind rather drastically, as it is a significant uptrend line. The 1.30 level underneath is major, as it is a large, round, psychologically significant figure just as the 1.35 handle is. I think that the British pound breaking down makes a bit of sense though, as the US dollar is likely to continue to strengthen through the summer anyway.
The British have recently announced that they are going to keep interest rates a bit lower for a longer amount of time than originally thought, so that of course has put bearish pressure on Sterling. I think this is short-term though, and I believe that in the next couple of months we will see buyers coming back into the British pound, but over the next several months I think we will see US dollar strength, based upon the bond market and of course interest rate expectations which of course is the biggest driver of currencies. The alternate scenario is that if we can break above the 1.3650 level, then I think we could get a little bit of upward momentum.