The British pound rallied initially on Monday, but found enough resistance near the 1.3225 level to turn around and fall back towards the 1.3160 handle. Since then, we have stabilized a bit, and this essentially looks as if it is a sideways and choppy market. I don’t think that the market is quite ready to make a significant move, but if we did break above the 1.3250 level, I think that would be bullish enough to start putting money to work again to the upside. I think that there is a significant amount of support near the 1.31 handle underneath, so although it’s going to be choppy, I do have more of an upward bias in this pair. I recognize that the Federal Reserve is going to raise interest rates, but then again so is the Bank of England.
I believe that currently the value hunters are looking at the British pound as it is historically cheap, and I think that longer-term money is starting to flow into the currency. After all, it’s not quite the nuclear meltdown that people had initially anticipated after the vote to leave the European Union, so I think that the selling off the British pound has been overdone. Ultimately, this is a market that should continue to find value hunters on every dip, and I think that we could eventually go back towards the 1.3650 level above. That was the scene of the massive gap after the vote to leave the European Union, and since then I think the market has been one that could be looked at as being cheap. The US dollar should continue to be strong against most other currencies, but this might be a bit of an outlier for those who are willing to hang onto a longer-term position.
Written by FX Empire