The British pound has initially tried to rally during the session on Monday but gave back a bit of the gains as we continue to see a lot of traders run toward the US dollar.
The British pound initially rallied during the trading session on Monday but has given back quite a bit of ground to the US dollar. That being said, the market is likely to continue to see a lot of noisy behavior, especially as the previous candlestick was a hammer, showing that there is at least some support. That being said, we are in the middle of a bearish flag, and therefore it would make a certain amount of sense that we eventually see sellers come back into this market. The 50-Day EMA above could continue to offer resistance as well, so let’s pay attention to that also.
If we do break down below the bottom of the hammer from the Friday session, it opens up a move down to the uptrend line which is the bottom of the flag, and if we were to break down below there, then it’s likely that the British pound could run toward the 1.20 level underneath, a large, round, psychologically significant figure, and of course an area that had previously been important. If we were to give up 1.20 to the downside, that could be very negative and ugly to say the least.
Breaking above the 50-Day EMA opens up the possibility of a move to the 200-Day EMA, which is the top of the flag pattern as well. Obviously, if we could break above that 200-Day EMA indicator, it would be very bullish. Remember that we tried to break above there last week but failed. If we were to break above that level, it would just show more resiliency, and then break much higher. At that point, it would be a major turn of events, and could lead to a massive move to the upside. I don’t expect that to happen, but it is a potential breakout with extreme momentum if this were in fact going to happen. With the Federal Reserve being as tight as it is, I just don’t see how the US dollar gets pummeled like that, but prepare accordingly, and recognize that sudden changes could happen in this environment.
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Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.