I would still have to favor the downside, but recognize there is upside risk due to the statement and press conference that are coming out.
The British pound broke down significantly on Monday as we have sliced through the 1.35 handle and completely wiped out the idea of a trend line break. At this point, the market looks as if this was a “false breakout”, and that is the way we are going to have to look at the market. If we break down below the candlestick from the trading session on Monday, it is very likely that we will see further downward pressure. At that point, I would anticipate an attempt to get down to the 1.34 handle initially.
However, we have the FOMC meeting and statement on Wednesday. Perhaps even more importantly, we have the press conference afterwards. Because of this, the next 24 hours might be a bit quiet for this pair, as we await to see just how hawkish Jerome Powell is going to be. Ultimately, a lot of what happens next will probably come down to whatever he has to say. The more hawkish he is, the more likely this pair is to break down.
On the other hand, if he were to step back and perhaps suggest that they are not quite as hawkish as the market has anticipated, then it is possible that the British pound may get a bit of a rally. That being said, a lot of technical damage has been done over the last couple of days, and it does suggest the false breakout will be proven. There is the possibility that we will go sideways, but this pair needs help from the central bank more than anything else at this point.
The Bank of England is expected to raise interest rates, but at this point in time that will not have as much of an effect as the Federal Reserve doing so. The British pound has been a bit more resilient against the greenback than most other G10 currencies, so that is something worth paying attention to. However, I would still have to favor the downside, but recognize there is upside risk due to the statement and press conference that are coming out. If we can break down below the 1.34 handle, then it is very likely we will go looking towards 1.32 handle. If we recapture the 200 day EMA above, then we will continue to go higher.
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