The British pound has broken down significantly during the trading session on Thursday to slice down through the 1.37 handle. Furthermore, we have broken through the 200 day EMA to show signs of extreme weakness, and we are closing towards the bottom of the range for the session. That suggests that we have further downside ahead, it is very likely that we will see that play out based upon the fact that the markets have been so negative in general.
Underneath, the 1.35 level is my essential target, but right now we also need to worry about the 1.36 level, an area that did offer a little bit of a bounce previously. Nonetheless, this is a market that I think will see plenty of downward pressure, even though there might be a little bit of a bounce here and there. Short-term rally should be a selling opportunity, as the market signs of exhaustion will get jumped on rather quickly. After all, this is a market that has fallen quite drastically to have the last three days, but we are seeing that across-the-board when it comes to the US dollar so this should not be any different.
If we were to break down below the 1.35 handle, then the market goes looking towards 1.30 level after that. The market will continue to see a lot of noisy behavior, and of course you have to pay close attention to the US Dollar Index, and perhaps even more importantly the 10 year note, as it can give you an idea as to where the greenback might go if we continue to see inflows.
The Federal Reserve has started to talk about tapering again, that of course will have a major influence on where we go next with the greenback. Higher interest rates will certainly drive the greenback higher as it makes it much more attractive to have dollar based bonds. When you look at the interest rate differential, you could continue to see a lot of favorable moves towards the greenback over the longer term. At this point, I have no interest whatsoever in trying to go long of this market, at least not with the present price action that I see on the chart. The 1.35 handle could be a place to find buyers but will have to wait to see whether or not we get that signal.
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