The British pound initially rallied against the US dollar on Monday, but found a lot of trouble near the 1.32 level. We pulled back, and it looks as if were going to try to test the 1.31 handle as I record this. The market has been very volatile, and it’s taken very little for British pound traders to start selling. A lot of the noise coming out of the trees some a government is not helping, so keep that in mind. Because of this, this market is going to be very difficult to trade from a longer-term perspective, unless of course you can deal with a lot of volatility. The volatility is part of what offers the opportunity though, so pullbacks like this could be nice longer-term buying opportunities but I would also recommend that perhaps it would be best to trade this market in smaller increments, building up a position as the trade goes in your direction.
However, if the market were to break down below the 1.30 level, then I think it would get very negative. At that point, we would probably go looking for the 1.2750 level, and then eventually the 1.25 level after that. The market will continue to be very jittery due to the British leaving the European Union, but at the end of the day it’s very likely that the Bank of England will raise interest rates, and longer-term that should help the British pound. There are so many moving parts currently though that it is very difficult to deal with in the short term. This is why I like adding to your position slowly, because it takes a lot of the gut wrenching volatility out of the trade. Longer-term, I do think we go higher.
Written by FX Empire