The British pound was all over the place on Wednesday, reaching as high as the 1.3275 level and as low as the 1.3175 area. We were awaiting the Federal Reserve statement, and now that it has come and gone, it appears that traders are somewhat comfortable with what has transpired. This is because the US dollar has sold off a bit during the session, suggesting that people are more than willing to take more risk on. Whether or not this translates to a much higher British pound will be a completely different question, but at this point in time it certainly looks as if we could get a little bit of a short-term bounce.
This all makes sense, because the British pound had been oversold for a while. We had been stabilizing a bit, and now it looks like that bounce is coming. Whether or not we can break out for a longer-term move is a completely different story though. The 1.34 handle above is an area where I would expect to see selling pressure, extending all the way to the 50-day EMA. With this being the case, it is very likely that we will continue to rally a bit, but there is a ton of resistance above.
When you look at the chart, you can see that there has been a lot of noise just above, and I think what we probably have is a little bit of recovery heading towards the end of the year, and then perhaps just hanging about. We are getting very close to the lack of liquidity part of the year, so I think that bigger players will more than likely be getting ready to get out of the market, and it is likely that we would see a lot of nothingness over the next couple of weeks. I suspect that by the time we get through the end of this week, we will have very noisy and choppy sideways action. I still favor the downside, despite the fact that we have seen such a massive recovery. I think a week or two of bullish pressure makes quite a bit of sense, but my “line in the sand” is above at the 1.34 handle. Any signs of exhaustion will be jumped upon.
