The British pound initially tried to rally during the course of the week, testing the 1.23 level before pulling back yet again.
The British pound has rallied a bit during the course of the week, showing signs of life. However, just as we had seen during the previous week, buyers disappeared, and we pulled back near the 1.23 level. With that being the case, the market looks as if it is still trying to dance around the 1.20 level underneath. The 1.20 level will attract a lot of attention, and therefore if we break it down below there, then I think the idea is that the 1.18 level is the next logical target.
If we turn around and break above the shooting stars from the last couple of weeks, that’s obviously a very bullish sign, and could send the British pound back 1.25 region. The 1.25 region is an area where you would expect a certain amount of psychological resistance, as well as historical flow. In other words, there should be a significant amount of “market memory” in that area. All things being equal, this is a market that I think will continue to be very negative, so fading short-term rallies have worked out quite well.
As far as longer-term trading is concerned, it might be a bit difficult to hang onto the trade, because we are extended to the downside. It looks to me like we are probably more likely than not going to be a short-term kind of ranging market, so longer-term traders will certainly be more negative, but they probably need to see a bounce in order to get a better risk-to-reward ratio on any set up that appears. If we see a move toward the 1.25 level, that would be more ideal.
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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.