The British pound initially tried to rally on Monday but gave up early gains as we continue to see a lot of US dollar strength. Ultimately, this is a market that will continue to pay close attention to the Federal Reserve.
The British pound has pushed higher to kick off trading on Monday but has since seen the US dollar strengthen again. Ultimately, this is a market that I think will try to find lower pricing, but we had seen a couple of hammers previously, suggesting that we are in an area of tight consolidation. Eventually, the market is going to have to decide which way it wants to go, but longer-term it looks like the downtrend is still very much intact.
When I look at the start, I suspect that we will test the bottom again, which is at the 1.20 region. This is an area that is a large, round, psychologically significant figure, and an area where a lot of people will be fighting at. If a breakdown below there, then it’s likely that the British pound goes much lower, perhaps reaching the 1.18 level, and in the 1.16 level. A lot of this comes down to the Federal Reserve, and what it is going to do, as it remains extraordinarily tight. On the other side of the Atlantic, you have the Bank of England not looking nearly as aggressive as the Fed.
On the upside, the 1.25 level should be a significant resistance barrier, so if we were to break above there it would be interesting, but I would not consider it a major break out until we get above the 1.26 level. If that were to happen, then the British pound could find itself all the way up at the 1.30 level, the next major resistance barrier.
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Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.