- The British pound initially did fall a bit during the trading session on Wednesday as the 1.30 level has come back into the picture.
- This is an area that is not only a large round psychologically significant figure, but it is also an area that previously has offered both support and resistance.
- So, I do think a certain amount of market memory comes into the picture.
There are a lot of different things you could glean from the candlestick, but what I am watching closely is the fact that we broke below it and then turned right back around the show signs of life.
Zooming In…
As I go down to the one hour chart, it shows that there was a massive sell off at one point earlier in the day, as traders chose to react to CPI coming in at 1.7 in the United Kingdom as opposed to 1.9. But since then, we have seen a bit of a reaction to this 1.30 level, so it'll be interesting to see how this plays out. I do think at this point in time you need to keep an eye on the 50-day EMA above because it could very well offer a significant short-term resistance barrier.
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But if we were to break above it, I think that would be a very bullish sign for the British pound. On a breakdown from here, we could see the market target the 200 day EMA, which is closer to the 1.2850 level. But I suspect that would happen in a background that sees a lot of US dollar strength across the board. In other words, it wouldn't be just in this pair, it would probably be against most other major currencies as well.
While the CPI numbers were a bit disappointing at the end of the day, the reality is that markets are very volatile right now. And therefore, I think you have to be cautious with your position size and therefore look for obvious moves. Some traders probably shorted this market as soon as it broke down below the 1.30 level and now are sitting on the sidelines waiting to see what their position will do. My hope is that we get a clear cut signal such as a major bounce from here that we can follow or a major breakdown. We are right here at a major inflection point.
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