The British pound has rallied a bit during the trading session on Thursday, reaching near the 1.22 level. This is an area previously has been supported, so I would look at this through the prism of a market that has broken through support, and now is trying to test that level for resistance. The trend is most certainly to the downside, so I don’t necessarily believe that we are going to see a massive change anytime soon. Even if we break above the 1.22 handle, we still have a long way to go before we can start talking about buying.
The 1.24 level is the next major resistance barrier, and now we are starting to see the 50 Day EMA reach toward that level. That provides a couple of different reasons why the sellers may start to get bearish again, not to mention the fact that the Federal Reserve remains extraordinarily hawkish with its monetary policy. In fact, it’s almost impossible to imagine the US dollar suddenly reversing course without the Federal Reserve changing its tune. The inflation numbers in the United States were slightly better than anticipated during the day, but not enough to change the trajectory of the Federal Reserve.
Looking at the charts, the 1.26 level continues to be a major resistance barrier, and if we were to break above there then we could get a little bit of a relief rally going. At that point, I would anticipate that the market could threaten the 1.30 handle. It’s not until we break above there on a daily close that I think the trend will have changed. Because of that, I’m not necessarily looking for buying opportunities and I look at rallies with suspicion.
Going forward, it would not surprise me at all to see the British pound trade below the 1.20 level, perhaps trying to get down to the 1.18 level which has been important in the past. The market will continue to follow central-bank divergence, which right now heavily favors the Americans. Ultimately, all central banks will probably have to start listening to monetary policy again, but for right now, Jerome Powell and company are pretending like the nation can afford higher rates to pay for profligate spending. As long as that’s the case, you have to believe that the US dollar will continue to be stronger.
