The British pound broke out to the upside during trading on Wednesday, reaching well above the 1.42 level. The breaking of the 1.40 level was in fact a significant event, and it now looks likely that we will see continued bullish pressure over the longer term. I think that pullbacks offer value that we can take advantage of, and that gives us an opportunity to add to what is already a strong core position. I believe that the 1.40 level now offers a “floor” in the market, which should keep the market afloat. It is not until we break down below that level that I would become concerned, because the move in the British pound has been so strong.
Adding further fuel to the fire is the fact that the US dollar has severed so greatly and should continue to do so as the great unwind continues. There are headlines coming across the wires during the session that the United Kingdom was going to use the existing EU trade agreements as the “floor” of the negotiations, and that they anticipate getting a better deal longer term. This of course has more confidence flowing towards the United Kingdom, so I think it’s only a matter of time before more buyers return. However, we are bit overextended, so I think it probably makes sense to wait for the opportunity to present itself on pullbacks. Longer-term, I suspect that we are going to go looking towards the 1.45 handle above.
Written by FX Empire