The British pound initially tried to rally during the day on Wednesday, but rolled over again and tested the 1.29 level underneath. We found enough support there to bounce significantly and I think the British pound is going to rally from here and then reach towards the 1.30 level above. A break above there and more importantly the 1.3050 level, census market much higher, perhaps reaching towards the 1.3450 level. However, if the 1.29 level gets broken to the downside, we should then go down to the 1.28 handle. That is an area that I think is much more supportive, so I think that the market will respect that level. However, we breakdown below the 1.28 handle, the market then breaks down rather significantly. A breakdown would be rather rapid in my estimation, but I don’t think is going to happen anytime soon.
Headline risk
I believe that there should be continued volatility in this market and of course headline risk as the negotiations between the United Kingdom and the European Union will cause quite a bit of possible headline risk out there, and of course this causes the market to be vulnerable to sudden moves. However, I do prefer the upside, and I believe eventually will break above the highs, and then we can go much higher after that. It would be a “buy on the dips” situation over the longer term as well. Ultimately, if we break down below the 1.28 handle, I think the market then goes down to the 1.26 level. The FOMC Meeting Minutes can influence this pair, as it has in effect on the US dollar in general. Nonetheless, I still believe in the upside over the longer term as I believe the recent bullish pressure should continue.
Written by FX Empire