The last couple of days have shown just how resilient this market is, but if it runs out of momentum, look out below.
The British pound initially rallied during the trading session on Thursday but continues to struggle above the 1.3650 level as we have pulled back from there again. For what it is worth, this is the second day in a row where we have seen this, forming potential shooting stars and/or inverted hammers, depending on which direction we break.
This brings up the crux of my analysis: we are either going to break above the top of a couple of inverted hammers, which of course is an extraordinarily bullish sign, or we are going to break back down below the 200 day EMA and perhaps break down quickly from there as it would have the effect of proving the market breaking out as being a bit of a “throw over” from the channel, or what some people call a “false breakout.”
At this point, the market would more than likely have to make some type of decision, and it is worth noting that we are hanging on, despite the fact that we cannot seem to be able to take off in the short term. That being said, if we were to break above these couple of candlesticks, that would not only show bullish pressure, but it would show a tenacity that almost certainly would bring more people in, due to the fact that we have failed a couple of days in a row. That to me would be the most powerful signal that we could get, not only due to the smashing through of a couple of inverted hammers, but the fact that the 200 day EMA held as well.
If we were to break down below the 200 day EMA on a daily close, the market could very well drop drastically down to the 1.35 level underneath, where the 50 day EMA is currently testing. If we break down below there, then the British pound attempt at a rally is probably over. I do recognize that the last couple of days have shown just how resilient this market is, but if it runs out of momentum, look out below. Keep in mind that the Bank of England is ready to raise rates rather quickly, so we have had to reprice the entire interest rate differential between the two currencies. Beyond that, the United Kingdom has decided to end all of the coronavirus lockdown measures, which should help the economy.
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