A little bit of patience will be needed in order to finally get a nice selling opportunity.
The British pound tried to bounce a couple of times over the last several days, but right now it looks as if the 1.20 level is going to continue to offer major resistance. The 1.20 level is an area that has previously been supported, so it does make a significant amount of sense that we would see a reaction in this general vicinity. With that being the case and the fact that we have had a massive downtrend going for some time, then it’s likely that we continue to see selling pressure.
If we do break it to the upside, the 50-day EMA could offer a significant amount of dynamic resistance. Keep in mind that the Federal Reserve is going to continue to be very tight with its monetary policy, so that does favor the US dollar. Furthermore, there is a lot of noise when it comes to concern about the global growth situation. If that is going to continue to be the case, then it’s likely that we will see the US dollar pick up strength due to the fact that the world is looking for liquidity in the greenback, and I think that continues to be a major problem. After all, the further you go out on the risk spectrum, the worse currency tends to perform against the greenback in a recessionary environment.
If we break down below the most recent low, it’s likely that we go down to the 1.16 level, just as if we can break above the 50-day EMA, we could go as high as the 1.25 level. That being said, the market is continuing to look very much like a “fade the rally” type of situation. I think this is a situation where you just follow the longer-term trend, as it is well ensconced and there are multiple reasons why it continues to look very negative. We would need to see the Federal Reserve change its overall attitude to suggest this market cannot turn around. Ultimately, it’s all about signs of exhaustion that we can start shorting again, so a little bit of patience will be needed in order to finally get a nice selling opportunity. It is worth noting that 1.20 continues to be very difficult to overcome.