The market is likely to see a lot of chop, so you need to be prepared for that.
The British pound went back and forth on Friday as it looks like the 1.32 level is going to continue to cause some issues. Because of this, it is very likely that we could see a bit of a drop. That does not necessarily mean that we are going to break apart, just that the markets do not have the necessary momentum to break out and keep going.
If we were to break down below the lows of the last couple of days, it is possible that we could go looking towards the 1.30 handle, which is a large, round, psychologically significant figure. It is also an area where we have seen a recent bounce, so when you put all of these things together, it is very likely that the market is trying to figure out whether or not the market just bottomed. Obviously, when you look at the longer-term charts this is an area that is important, so I do think that the market will be paying close attention to that area.
If we were to break down below the 1.3 handle, it is possible that this market would go looking towards the 1.28 handle. That area is the bottom of the overall support in that zone, and obviously, this would probably have more to do with the US dollar than the British pound. The market has been in a downtrend for a while, so even if we are trying to turn things around, it will probably take a significant amount of momentum. Because of this, the market is likely to see a lot of chop, so you need to be prepared for that. You will probably need to look at this more or less as a short-term market at the moment, but once we get a large impulsive candlestick, we can put some money to work for a longer-term trade.
On the upside, the 50-day EMA sits at the 1.33 region, and if we can break above there is likely that the market goes towards the 1.34 handle. The market turning around like that could confirm the bottoming pattern, but we have some work to do in order to make that type of move happen.