The British pound has initially tried to rally a bit during the trading session here on Thursday but gave back gains and we are now well below the 1.35 level.
The 1.35 level is an area that has been important and I think the 1.35 level is an area that will continue to attract a lot of attention.
Keep in mind that the British pound is falling for a whole host of reasons, not the least of which is that the Bank of England held rates last meeting, but they also had a 5 to 4 vote split revealing a growing faction favoring immediate cuts. This is compounded by recent data suggesting that UK employment is at roughly 5.2%, which is a 5-year high and now markets have priced in a 75% chance of a rate cut in March. This is the biggest issue that the pair is facing at the moment.
Central Bank Divergence and Technical Outlook
By contrast, you have the Federal Reserve in a wait-and-see mode, and I think that makes the US dollar a little bit more hawkish. Plus, the US dollar shorts had gotten so overdone that it makes a certain amount of sense that the overextension of short positions needs to be wound down against any signs of weakness as we have here.
I do think we will probably go looking to the 200-day EMA next, which is the 1.3350 level. Short-term rallies should end up being selling opportunities at the first signs of exhaustion. This will continue to be the way going forward as far as I can see at the moment.
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