The British pound has been very quiet during the trading session on Wednesday as we are sitting just above the 200 day EMA. The 200 day EMA sits right at the 1.37 handle, so therefore I think it will offer a significant amount of support yet again, because not only have we seen this area act supportive previously, but the 200 day EMA sitting there of course will attract a lot of attention as well. If we were to break down below the 1.37 level, then it could open up the possibility of a move down to the 1.35 handle underneath which will be even more supportive from a psychological standpoint.
If we do rally from here, it is very likely that the 50 day EMA will continue to offer a lot of resistance, as it has been over the last week or so. The 50 day EMA does attract a lot of attention and it should be noted that the 50 day EMA is offering resistance while the 200 day EMA as offering support. In other words, we are “squeezing” in the same general vicinity, and therefore I think noisy trading is probably the most likely thing that we see.
Keep in mind that this has more to do with the US dollar than it does the British pound, as the British pound has done fairly well against most currencies, but the US dollar course is special due to the fact that everybody seems to be buying it all at the same time. It is a certain amount of a “risk off” attitude when traders buy the US dollar, and of course as the traders start picking up US bonds, they will need more of those US dollars. In general, this is a market that I think continues to see downward pressure overall, mainly because the US dollar strength. If we were to turn around and break down below the 1.35 handle, then it is likely that we go much lower. At that point in time, it is likely that we would see the British pound change completely trend, but we obviously have a lot to choose through between now and then. To the upside, if we were to break above the 50 day EMA, then the 1.40 handle comes into the picture. That level has been extraordinarily resistive, so I do not necessarily think that we are going to be able to slice through there anytime soon.
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