The British pound has been very volatile during the trading session on Friday, testing the 1.3250 level but failing. However, I think that eventually we will break above there as the British pound is going to continue to strengthen as it is historically cheap. Looking at the longer-term charts, we are forming a hammer on the weekly timeframe, and that of course is a very bullish sign as well. Ultimately, this is a market that I think continues to grind its way to the upside, in a methodical manner. A break above the 1.3250 level should send this market looking towards the 1.35 handle above, and then eventually the 1.3650 level. That is the scene of the gap lower after the Brexit vote, and that means that we will continue to see a lot of interest paid to that area. If we were to break above there, the market could go much higher, perhaps the 1.40 level over the longer term.
I think that there are a lot of concerns when it comes to headlines coming out of the negotiation between the United Kingdom and the European Union, and that of course will continue to cause issues with the British pound overall. However, I think that there is a longer-term argument to be made for going higher, so I believe that investors are starting to buy the British pound. The US dollar has been strengthening in general, but at these extraordinarily low levels, it makes sense that this pair rallies. Remember, it was just a few years ago that we were trading at 2.00 in this market. Because of this, I believe that the market should continue to be very difficult to manage, but I believe in the value of the cheap British pound.
Written by FX Empire