Ultimately, short-term trades with small positions will probably be the best way to approach the British pound, as well as many other currencies in this environment where we are searching for some type of clarity.
- The GBP/USD currency pair has rallied a bit during the trading session on Wednesday as we continue to see a lot of noisy behavior.
- At this juncture, I think we are forming a bit of a potential rounding bottom on the recent pullback, so if we can break above the 1.25 level, I think a lot of people will get involved.
- This is a large, round, psychologically important figure, so that in and of itself will attract a certain amount of attention.
- In that scenario, I suspect that the market goes looking to the 1.2750 level, possibly even a 1.30 level after that.
Expect Choppiness and Volatility
On the downside, we have the 200-Day EMA near the 1.2139 level, with the 50-Day EMA sitting just below it and getting ready to cross. This could kick off the “golden cross” indicator that a lot of people like, so it will be interesting to see if the longer term traders pay close attention to it. That being said, it’s fundamentals of the markets, so it will be interesting to see how the reaction to the inflation situation in the UK versus a lack of growth will be as well, because the Bank of England probably has to tighten monetary policy, but the Federal Reserve is also in a situation where they have to fight hot inflation in the United States, despite the fact that traders are out there looking for some type of handout by the Fed.
I think we probably spend more time going back and forth than anything else, which has been the norm for the markets recently. With that in mind, I think you have to be cognizant of the fact that the volatility will pick back up soon, but right now it’s just chop more than anything else. This is almost certainly going to be due to concerns about what the Federal Reserve may or may not do, so with that in mind, pay close attention to what they have to say next week. Between now and then, I would not expect too much, because quite frankly I think that would be a lot to ask out of the markets. Ultimately, short-term trades with small positions will probably be the best way to approach the British pound, as well as many other currencies in this environment where we are searching for some type of clarity.