- The British pound has gotten hammer during the early hours on Wednesday as we continue to see a lot of chaos in the currency markets.
- We continue to see a lot of volatility, and unfortunately think that might be more or less a feature of the market, and not a bug.
- After all, the Federal Reserve remains steadfast in its strategy of strangling the economy, as although there is a massive amount of inflation, we are starting to see real pain.
As long as they keep monetary policy tight, it’s likely that the US dollar will be somewhat attractive, at least from an interest rate perspective. That being said, I also think that you have a scenario where traders will continue to look for any help whatsoever in determining whether or not the Federal Reserve may possibly someday think about cutting rates, because they are more than willing to jump all over that if they get an opportunity. This makes a certain amount of sense, considering that almost all traders now have never lived through an inflationary environment.
200-Day EMA
The 200-Day EMA is an indicator that sits just below current trading, and I think a lot of people will be paying close attention to it. If we were to break down below there, then it’s likely that the GBP/USD market could go down to the 1.25 level, which is an area that is not only a large, round, psychologically significant figure, but it is also an area where we have seen a lot of support and resistance previously, kicking off the idea of “market memory” in that region. If we have that actually happen and offer support, it might end up being a nice buying opportunity, but we will have to wait and see what happens if we do get there.
If we were to break down below the 1.25 level, it could open up a massive unwinding of the British pound, perhaps sending it down to 1.22, maybe even down to the 1.20 level, but I think we are a long way from seeing that happen. I would suspect that sooner or later we will see buyers coming in and picking up “cheap British pound.”
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