The British pound initially fell during the Monday session, but found the 1.2850 level to be supportive enough to cause a major bounce to reach towards the 1.29 handle. I think if we can break above here, the market will probably try to make a move towards the 1.2950 level, and then possibly the 1.30 level after that. Longer-term, I think there will continue to be concerns about the British pound, as we continue to see headlines and of course concerns about the United Kingdom leaving the European Union. The inflationary pressures and the United Kingdom were a bit soft, so it’s likely that we will continue to see bearish pressure on the British pound. This is probably more of a reaction to the US dollar than anything else, and quite frankly I’m looking for exhaustive candles to start selling again.
The alternate scenario
I believe that the alternate scenario is if we break above the 1.3050 level, it’s a very strong sign to start buying. However, right now I think that the market seems likely to remain volatile, but I do think that given enough time the bearish trend will continue. If we can break down below the 1.2850 level on a daily close, that would indeed be very negative, and probably send this market looking towards the 1.2750 level, and possibly even lower than that. Either way, I expect extreme amounts of volatility so small position sizing is best suited for this market, and quite frankly you would be forgiven for stepping away from this currency pair for the next couple of weeks, as liquidity will be a bit thinner than other times of the year as most traders will be on vacation from the larger firms. Headlines continue to drive this market.
Written by FX Empire