The British pound tried to break above the 1.40 level during the early hours of Tuesday but found enough resistance at that area to send the market looking to lower levels. We are trying to find a bit of a bounce just below the 1.39 level though, and this suggests to me that we are trying to form some type of bottom and build up momentum so that we can go higher. The market had gotten a bit ahead of itself I believe, and at this point I think this is simply a healthy correction and it should continue to be a market that is looking for reasons to go higher, and I believe that the 1.45 level above is going to be the target. There are a lot of concerns out there though, and we could have a run to safety, which helps the US dollar.
Another thing to pay attention to is the bond market in the United States, which is starting to see rising yields. This puts pressure on the Forex markets and makes the US dollar more attractive as foreigners start to buy bonds. However, I think longer-term we are still looking at the British pound going higher as interest rates in that country could be rising as well, and there is a general oversold attitude in the British pound looking at a historical sense. Because of this, I like the idea of going long but I need to see this market break above the 1.40 level before I put money to work.
Written by FX Empire