The GBP/USD initially fell during the trading session on Friday, as we continue to see a lot of negativity. However, the Bank of Japan got involved in the currency markets, thereby squeezing the US dollar. As they intervened in the USD/JPY pair, it brought down the value of the US dollar, and the “knock on effect” was felt over in this market as well as many others.
By bouncing in the manner that we have, we ended up forming a hammer that shows signs of support at the 1.10 level, and therefore it’s very likely that we will continue to see that area as a potential target for short-sellers, and possibly a significant support barrier. However, I do think that it is probably only a matter time before this market breaks down through there, and it does make a certain amount of sense that we would see the US dollar strengthened for a whole host of reasons. That being said, it looks like the British pound is trying to recover a bit due to the oversold situation that it had recently been in, and now the 50-Day EMA is starting to grind sideways and drop. That is a major technical indicator that a lot of people pay attention to and has acted as a bit of a trendline over the last several months.
Even above there, I think there are plenty of areas of resistance that could come back into the fold, especially near the 1.15 level.
I think that this continues to be a “fade the rally” scenario that people will be paying close attention to, so the first signs of exhaustion I will be more than willing to short this market yet again.After all, we are in a huge downtrend, and therefore it’s going to take a Herculean effort to turn things around.This is a situation that continues to be noisy, but as long as the UK continues to be chaotic from a political standpoint, it does make a certain amount of sense that we would see the British pound be a bit softer, and perhaps even more susceptible to the occasional headline shock. The Federal Reserve remains very tight with his monetary policy, and therefore the US dollar continues to see a bit of a bid overall.