The markets will continue to be vulnerable
The British pound has rallied during the trading session on Wednesday to reach near the 1.32 handle, an area that has been important more than once. By giving up about half of the gains during the trading session, it suggests that the markets will continue to be vulnerable, especially as the downtrend has been so strong.
After all, when you look at the candlestick for the previous session, you can see that it had formed an inverted hammer. This is followed by another pseudo-inverted hammer, so it is possible that we are going to continue to see short-term “sell on the rallies” type of markets. The 132 level should be a bit of a barrier, but it has been broken recently. Because of this, the market will more than likely also have to respect the 50 Day EMA, an indicator that has been somewhat reliable over the last several weeks.
On the downside, if we were to break down below the bottom of the candlestick for the trading session on Wednesday, we will almost certainly go looking to the 1.30 level underneath. This is an area that I think will continue to be very difficult to deal with and break down. If we were to break down below the 1.30 handle, it opens up the possibility of a massive amount of selling, but I would also advise that the area between 1.30 and 1.28 is a massive “zone of support.”
Keep in mind that the British pound will rise and fall with the risk appetite of traders around the world, especially as it is measured against the US dollar in this pair. I think that we will continue to see very choppy and noisy trading, especially as we are sitting on top of such a major area of support. Because of this, I would keep my position size relatively small, and focus on the shorter-term time frames more than anything else. The shape of the candlestick is somewhat negative, but there is enough of a real body left that it also shows just how much confusion there is overall. This is a market that I think continues to be noisy but will move against the US dollar or four at just like any other major currency pair that will follow.