Keep in mind that a bounce can look like a reversal, but we have a lot to work through in order to confirm a complete change in attitude.
The British pound initially fell on Monday to test the 1.30 handle before bouncing and showing signs of life. The candlestick for the trading session on Monday ended up forming a bit of a hammer, just as it did during the day on Friday. At this point, the market breaking below the lows of the last couple of days would be a very negative sign, perhaps sending this market to go to the 1.28 handle.
It is worth noting that the longer-term chart shows a significant “zone of support” that extends from the 1.30 level down to the 1.28 handle. Because of this, I believe it will be very noisy and it is worth noting that if we do break down from here, it is probably going to be a grind lower than anything else.
The candlestick suggests that we could get a certain amount of upward momentum at this point, and I think what we have is a situation where the market is more likely to bounce than not. That being said, I do not think that a bounce is an excuse to start buying; I think it is more or less going to be a situation where you are fading short-term rallies that show signs of exhaustion unless, of course, we get a major breakout to the upside.
If we were to break above the 50-day EMA, then it would be a very bullish sign and it could open up the possibility of a trend change, but we are light years away from that happening at this point. The US dollar continues to strengthen overall, and if we do get a little bit of a pullback in the value of the greenback, that will only confirm that the British pound will start to rally. We have been in a downtrend for quite some time, and it makes sense that the market will continue to look for shorting opportunities. This is a market that I do not have any real interest in trying to buy anytime soon. Keep in mind that a bounce can look like a reversal, but we have a lot to work through in order to confirm a complete change in attitude. It is difficult to imagine a scenario where things change anytime soon.