The British pound rallied a bit during the trading session on Monday to reach towards the 1.35 level. At this level, we are starting to see a little bit more bullish pressure, but at the end of the day we are still very much in a market that has been negative as of late. While I typically would look at this as a bullish turn of events, it should be noted that we recently formed a massive “H pattern”, which in and of itself is rather negative. At this point, I think the market bouncing suggests that perhaps it is simply a “dead cat bounce”, but it should also be noted that the 1.37 level underneath is massive support. Furthermore, we have the 200-day EMA hanging around in that same general vicinity, so it should not be a huge surprise at all to see it offer support.
To the upside, the 50-day EMA is working near the 1.3965 level, and just above there we have the 1.40 handle which has already offered resistance. When I look at this chart, I think we have nothing but noise, and perhaps a lot of sideways action just waiting to happen. However, if we were to break down below the 1.37 handle, then it is possible that we could go looking towards the 1.35 level. Below there, the market will almost certainly go much lower, perhaps as low as the 1.30 handle.
If we manage to break above the 1.40 handle, then it is possible that the market could go looking towards the 1.42 level. The 1.42 level has a long history of being important on longer-term charts as resistance, so with that in mind I think that it will continue to offer the possibility of serious trouble. In fact, when you look at the 1.42 handle, you can make an argument for a bit of a “double top” above, as we have pulled back from there a couple of times recently. I think the one thing you can probably count on in the short term will be the fact that the market will continue to be rather choppy and probably cause just as choppy behaviors as we had seen over the previous month. I think that will probably be the case for the rest of the summer.
