The British pound has fallen significantly during the trading session on Thursday as we continue to test a major support level in the form of 1.3250. This is a significant area that a lot of people will be watching and if we can break down below the 1.3250 level, then I think we could open up a move down to the 1.30 level.
Ultimately if we turn around and show signs of life and break above the 200-day EMA, then we could open up a potential move to the 50-day EMA which is right around the 1.35 level. All things being equal, the market is going to continue to be noisy, but I think it remains more or less on a “buy on the dip” type of situation.
US Dollar Strength and Central Bank Policy
Now, if we do break this 1.3250 level, I think that shows that the US dollar is going to go much higher not only against the British pound but probably other currencies as well. So even if you don’t short this, you might short the Australian dollar, you might short the New Zealand dollar, you buy the dollar against the euro, other currencies around the world.
I like this chart for a bit of a measuring stick, if you will, on US dollar strength or weakness as the Bank of England has been a bit more stubborn than many other central banks around the world cutting rates despite the fact that they are expected to.
Therefore, if you see the dollar strengthening here, it stands to reason that in places like Wellington in New Zealand, they’re probably going to be even more dovish, and they probably will see that the kiwi drops from there. All things being equal, this is a market that I think has a lot of support underneath it though, but I’m not particularly keen to buy short-term dips unless I were to do it from a short-term perspective.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
