British Pound Finding Buyers
- GBP bounced from 61.8% Fibonacci retracement level
- Strong candlestick for Thursday
- Break above 50-day EMA
The British pound initially fell during the trading session on Thursday, but then turned around to rally to break above the 50-day EMA. Not only that, but the market has broken above the top of a couple of hammers on the daily chart, which is a very bullish sign. Ultimately, the question people will start to ask is whether or not the trend is changing, as the British pound has been oversold for so long.
The importance of the next round figure
The importance of the next round figure, the 1.25 level, is not to be understated. The market will also have the specter of the 200-day EMA in that area, so it’s very likely that although we look to be ready to reach towards it, it’s not going to be very easy to break free of. That being said, if the market was to close above the 200-day EMA, it would signal to a lot of longer-term traders that the trend has in fact changed.
Brexit always an issue
The Brexit situation continues to weigh upon the British pound, and the headlines going through both good and bad notions will have an erratic effect on this market. However, the British pound is at historic lows and one would have to think that we are much closer to the bottom than we are the top. Even if there is a no-deal Brexit, it’s very likely that the market participants will start to look at the British pound as offering value. There will be a flush lower more than likely, but then it should be the bottom.
Other fundamental factors
The other fundamental factors that are coming into play is the fact that the US dollar has been strengthening. While not so much against the British pound, it still provides a little bit of an anchor around the neck, so to speak. If there is a rush to safety currencies that will have the US dollar strengthening as people will be looking to buy US treasuries, which of course drives up demand for the greenback.
The market going forward
Although it does look like the British pound is trying to turn things around, sudden pullbacks should be prepared for. The 61.8% Fibonacci retracement level underneath near the 1.22 level looks to be the “floor” of the market currently, and a break down below there opens the door to the 1.20 level. Alternately, if the market was to break above the 200-day EMA, then it would open the door to the 1.30 level, and perhaps even beyond. At that point, it becomes more of a “buy-and-hold” scenario. In fact, once the British pound takes off to the upside, it will probably be a career-making move for those who are patient enough to cash out months later.