The British pound fell slightly during the course of the day on Friday, as the area above the 1.19 handle offered some support. However, it is important to note that the market has been drifting lower for some time, and it is likely that the aggressive selling will continue.
The 50 day EMA is placed just below the 1.21 level, while the 200 day EMA is just above it. The market is currently trying to determine its longer-term direction, but the recent bearish drift suggests that problems may continue. The level of 1.19 is a psychologically important number, and it extends down to the level of 1.1850, Where important support was seen previously. If the market were to break down below there, it could result in a move towards the 1.15 level.
If the market were to break above the 1.22 level, that could result in a move towards 1.24. However, the 1.24 level had previously double-topped, which could result in significant selling pressure. Breaking that level, along with the 1.25 level, would require a significant amount of momentum and a significant shift in fundamental analysis.
Given the current uncertainty, geopolitical and economic risks, and volatility, it is difficult to imagine a situation in which the US dollar would fall significantly. Therefore, rallies will likely be sold off going forward. However, the Bank of England recently indicated that the interest rate situation in the country could be stronger, although the Federal Reserve is also looking at “decreasing for longer”.
In short, the British pound is likely to remain volatile in the short term, with the market drifting lower and support levels extending to 1.1850. A breach of important resistance levels like 1.22 and 1.24 could lead to a move higher, but this would require a major shift in fundamental analysis and a lot of momentum from the trading community to push the pound up through this level.
All things being equal, it is very likely that we will continue to see the US dollar strengthen over the next several months, but the momentum will not be what it has been in the past year without some type of “risk off event” in financial markets globally. A lot of choppy behavior can be expected, so you would probably be better off paying attention to the short-term charts, while paying attention to the longer-term daily time frame.
