The British pound initially rallied during the trading session on Wednesday, but gave back the gains to turn around and show hesitation again as the 1.42 level continues to offer significant issues for buyers to overcome. This is an area where we have seen a lot of pushback, so it certainly suggests to me that the market is going to continue to see noisy behavior that we have seen for some time. The 1.42 level is a major resistance barrier that, if broken, could lead to a bigger move to the upside.
The market closing above the 1.42 handle on a daily close suggests that we are going to see an enhanced move towards the 1.45 handle, an area that is a large, round, psychologically significant figure and one a lot of people would be paying close attention to. With this being the case, I think what we are looking at is a scenario in which we are simply trying to build up the necessary momentum to make the bigger move.
To the downside, the 1.40 level should be supportive, as it is a large, round, psychologically significant figure and the most recent breakout that we have seen. Furthermore, the 50-day EMA is sitting just below there and starting to slope higher, so it does suggest that perhaps there will be a little bit of dynamic support in that region. Even if we were to break down below there, I would be a bit hesitant to short this market due to the fact that the US dollar continues to struggle overall, and the British pound is a representation of the UK economy opening up. With this being the case, I think that it is only a matter of time before we do build up enough momentum to go higher, but ultimately, this is a market that favors the overall buying of dips and the breakout more than anything else. I have no interest whatsoever in trying to short this market, at least not until the overall attitude towards the US dollar changes. Right now, it does not look likely to happen, so I remain cautiously optimistic; but I recognize that we may have an opportunity to pick this market up at lower prices, especially near the 1.40 level.
