Pound Continues to Attempt to Break Out

It certainly looks as if the market thinks that the Bank of England could surprise with hawkish behavior.

The British pound rallied rather significantly on Tuesday to continue the massive move to the upside. That being said, the market is likely to continue seeing upward pressure on pullbacks, but longer term we are probably going to continue to see more of a focus on central bank policy. It should be noted that Friday features not only the Bank of England and interest rate decision, but it also features the jobs number coming out of the United States. With this being the case, it is likely that we will continue to see a lot of guessing as to where we go next.

The 1.35 level causes a certain amount of interest, as it had been resistance previously. However, as we have seen this market close towards the top of the range for the session, it certainly looks as if we have a little bit of wherewithal by the bullish traders out there. The market will continue to hear a lot of noise here, because there is a lot of fear out there. Whether or not we can continue to hang on to this type of positivity is a different question altogether, but I do think that ultimately, we will have to make a bigger decision.

The central bank decision on Friday is going to be a major driver as to where we go next, as the attitude of the central bank could work against the value of the British pound if they suddenly suggest that they are not going to be extraordinarily hawkish. They are expected to raise interest rates by 25 basis points, but a failure to do so could have the markets freaking out as well. A lot of what will happen is probably going to be based upon the idea of whether or not the Bank of England is ready to raise interest rates consecutively, or if they are going to become “data dependent.”

To the downside, if we were to take out the candlestick from the trading session on Tuesday, that would be an extraordinarily bearish sign, and probably have British pound traders running for the hills. Having said that though, it certainly looks as if the market thinks that the Bank of England could surprise with hawkish behavior.