The British pound initially pulled back a bit during the trading session on Friday but then turned around to break above the 1.2250 level as the recovery continues. That being said though, the British pound still has a whole host of problems, as the Brexit is still a million miles away from resolution. The 50 day EMA is going to come in near the 1.2350 level, and therefore I think it’s only a matter of time before we see sellers jump all over this again. Even if we break above the 50 day EMA, it’s very likely that we will continue to see even more resistance closer to the 1.25 handle above.
The 1.20 level underneath has caused the lot of support, but that’s to be expected as it is such a large, round, psychologically significant figure. Bouncing from here should make quite a bit of sense as it is the market simile trying to build up enough momentum to finally slice through that level. If we do break down below that level, it’s possible that we go looking towards 1.15 level, which is my longer-term target. We are getting closer to the October 31 deadline, and I think at this point it’s very unlikely that the situation get cleared up. Obviously, the latest rhetoric suggests that we are heading towards a “no deal Brexit”, and I think that is now what we would have to think is the “default scenario” going forward. With that in mind, and the fact that the US Treasury markets continue to offer a lot of sanctuary, drives up the value of the US dollar overall. We have also seen a major “risk off” rally later in the day, so I think it’s only a matter of time before the pound gets hammered. Fading short-term rallies continues to work longer term.
The 1.20 level underneath has caused the lot of support, but that’s to be expected as it is such a large, round, psychologically significant figure. Bouncing from here should make quite a bit of sense as it is the market simile trying to build up enough momentum to finally slice through that level. If we do break down below that level, it’s possible that we go looking towards 1.15 level, which is my longer-term target. We are getting closer to the October 31 deadline, and I think at this point it’s very unlikely that the situation get cleared up. Obviously, the latest rhetoric suggests that we are heading towards a “no deal Brexit”, and I think that is now what we would have to think is the “default scenario” going forward. With that in mind, and the fact that the US Treasury markets continue to offer a lot of sanctuary, drives up the value of the US dollar overall. We have also seen a major “risk off” rally later in the day, so I think it’s only a matter of time before the pound gets hammered. Fading short-term rallies continues to work longer term.