It will be interesting to see how this plays out, but clearly the British pound continues to show plenty of strength.
The British pound rallied significantly on Friday to reach towards the 200-day EMA. Perhaps more importantly, there is a shooting star from a couple of days ago sitting here, and there is a major downtrend line that is starting to offer a significant amount of resistance. That being said, the last three candlesticks have been a shooting star, followed by a hammer, followed by a bullish Marubozu. This is a very bullish sign and I think it is probably only a matter of time before we break out to the upside.
If we do not break out, then it is very likely that we will continue to go back and forth, perhaps using the 1.35 level as support. That being said, we are starting to see the US dollar sell off a little bit against multiple currencies, so it does make sense that the one that has already been a bit stronger than the others should continue to see this market strengthen even further. At this point, I think it is probably only a matter of time before we see a breakout, and if we do, that could send the British pound looking towards the 1.38 level above.
Please do keep in mind that a pullback could drop all the way down to the 50 day EMA, currently at the 1.3439 level, and still be thought of as consolidating as the 200 day EMA and the 50 day EMA tend to “squeeze markets” when they are stuck between the two of them. Because of this, I would be cautious about getting aggressive, but it certainly looks as if the upside seems to be the correct way to go if you have to put money on.
Keep in mind that we just got through the first week of January, when traders start to put money to work, and we got through the Non-Farm Payroll figure on Friday which was only about half of what was expected. The United States added just 199,000 jobs for the month of December, as opposed to the over 400,000 expected. Because of this, it will be interesting to see how this plays out, but clearly the British pound continues to show plenty of strength.
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