The shape of the candlestick for the day is a hammer, so that does suggest we are building pressure to the upside.
The British pound has initially fallen during the trading session on Monday to reach down towards the 1.3535 level, only to turn around and show signs of life again. That being said, the market looks as if it is trying to fight this 200 day EMA that sits right at the top of the body of the candle and therefore it makes quite a bit of sense that there would be a bit of a fight here. Furthermore, we are at the top of a major down trending channel and trying to break out above and go looking towards higher levels.
If we do break out to the upside, I believe that the target will be closer to the 1.38 handle, which of course is the next swing high that is at the upper part of the channel. All things being equal, that does make a certain amount of sense, not only due to the fact that it is a swing high, but the fact that it has been important a couple of times. The shape of the candlestick for the day is a hammer, so that does suggest we are building pressure to the upside. Whether or not that pressure can hold is completely a different question at this point in time, but it is an important one.
If we turn around a break down below the 1.35 handle, then I will consider this a simple continuation of the overall down trending channel that we have been and for what seems like a lifetime, and therefore I will start shorting. At that point in time, I would anticipate a brief hesitation at the 50 day EMA followed by a move back into the golden box that I have drawn on the chart. Obviously, that would be a continuation of the overall attitude that we had seen over the last several months, and of course jive well with the idea of higher interest rates in the United States. Keep in mind that the entire world is watching the bond market in America, as it has become front and center news. Because of this, you need to keep an eye on whether those yields are going higher or lower, because higher yields of course attract more interest in owning the greenback. If they start to fall again, that might be a catalyst to launch the British pound.
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