The British pound initially tried to rally during the trading session, and then fell hard on Friday as interest rates rose again in the United States. At this point, we are trying to figure out whether or not we are going to go sideways or breakdown. After all, the market had been in a massive move to the upside, and now I think we need to either work off some of the froth, or perhaps even pull back a bit in order to find an of value.
The 50-day EMA underneath continues offer support, just as the previous uptrend line as. The 1.3750 level underneath offers quite a bit of support as we have seen over the last couple of weeks, just as it had been massive resistance back in January. At this point, it is very likely that the market continues to see noisy behavior, but we will have to make a bigger decision.
One of the biggest drivers recently has been the yields coming out of the United States, as the 10-year has hit 1.75% recently, which makes the US dollar much more attractive than it had been previously. With this being the case, I think that if we break down below the 1.3750 level, the market is likely to go looking towards the 1.35 level where you would see significant support as well. If we were to break down below that level, that would be what I consider a good chance of a major change in trend, and therefore we would go much lower. For what it is worth, the weekly candlesticks over the last month or so do not look healthy so I would not be surprised at all to see this pair pull back. At this point, it is a question of whether or not we will find enough buyers underneath to keep the British pound bullish.
One of the main reasons we are seeing the US dollar strength as of late is the fact that, unlike many other countries around the world, the United States is actually seeing growth, which is something that is going to be rewarded. With that being the case, I do think it is only a matter of time before we have to make a longer-term decision. If we were to break above the 1.40 level on some type of bullish move, then I think we probably have the market going towards the 1.42 handle above.
