The British pound initially rallied on Friday but gave back gains as we continue to see plenty of exhaustion to the downside. I think if we can break down below the lows of Thursday and Friday, this market could go much lower, perhaps reaching towards the 1.32 handle.
That being said, keep in mind that the Federal Reserve is tightening its monetary policy, so it makes sense that we would see that the US dollar continues to strengthen. Beyond that, we also have a major problem when it comes to risk appetite at the moment, so the US dollar has multiple reasons to go higher. Because of this, I think you will continue to see rallies sold into, especially as we had previously broken above the top of the downtrend line that was so important previously. It ended up being a bit of a “false breakout”, so that signifies further weakness ahead. The market will continue to see a lot of downward pressure until we see a major change in risk appetite, something that will take quite a bit of effort.
The overall attitude of the British pound has changed completely, despite the fact that it was one of the better-performing currencies against the US dollar over the last several months. That being said though, in the last couple of weeks we have seen a complete turnaround, and now it looks as if it is going to fall against the greenback right along with everything else. As long as there are a lot of concerns out there when it comes to not only the Federal Reserve but the fact that every session could be coming, people will start to hoard US dollars. The US dollar strengthening has worked against commodities as well, and crude oil slowing down could have a little bit of an effect on the pound also. In general, the UK seemed to be primed to be one of the first major economies to break out, but suddenly the attitude of traders have completely changed and we did fail to change the overall trend. With that being the case, I think we may see a little bit of support at the 1.34 handle, but it is more likely than not we will go looking towards 1.32 based upon the most recent action.
