The British pound fell a bit on Monday as traders came back to work. The market looks as if it is trying to come back to the break out level to find out more buyers. I believe that a lot of short-term “profit collecting” is to blame for what we are seeing. I’m looking for a bounce, and am more than willing to take advantage of it. I would suspect that the 1.30 level should be supportive, as it has been resistive in the past. The US dollar has been on its heels recently, and I think that’s probably going to continue to be the case as the Federal Reserve tightening of monetary policy looks to be a little less stringent than once thought.
Oversold British pound
The British pound has been oversold for months, and as a result I think people are starting to come to the conclusion that perhaps leaving the European Union isn’t going to be fatal. It isn’t necessarily that there won’t be harm to the British economy, just that perhaps the market overreacted to the vote. That being said, I believe that the market will continue to find buyers for the British pound, and that the next target will be the top of the consolidation area that was once part of this region, the 1.3450 level above. That’s not to say it’s going to be easy, and we will probably get several pullbacks as the market will be volatile, but I think longer-term the buyers are starting to collect British pounds as they are historically cheap. If the British economy recovers at all, the British pound will be undervalued, and therefore a lot of traders will be looking to pick up value in one of the world’s strongest economies.
Written by FX Empire