The British pound rallied during the day after initially falling on Friday, as we had first tested the 1.31 handle for support, founded, and then rallied towards the 1.32 handle above. I believe that the 1.3250 level above there is massive resistance, so it may take some time to build up the necessary momentum to clear that area. However, I think that longer-term the British pound continues to strengthen as the Bank of England looks likely to raise interest rates, even though the US dollar had a very strong session during the day. In fact, the British pound is one of the few currencies that strengthened against the greenback, so that shows me just how bullish the British pound is currently. Because of this, I am a buyer of dips, but I also recognize that it’s probably best to trade in small increments, adding slowly.
I believe that a break above the 1.3250 level should send this market looking for the 1.35 handle next, but as with all things related to Britain right now, there are going to be a lot of headlines that could move the marketplace. I think that the market should continue to be noisy, but quite frankly it looks to me as if we put a bit of a base in on the Friday session, as the daily candle will end up being very bullish. If you can ride out all of the volatility, it’s likely that the market would continue to rally overall, but it is going to be difficult to hang onto at times. Keep in mind, this pair is headline driven right now, so being small in your position sizing is probably the best thing that you can do right now. Ultimately, I am bullish.
Written by FX Empire