• During the early hours on Wednesday, we saw the British Pound rally a bit against the US Dollar, but it has since rolled over to show signs of hesitation.
• I've been waiting to see whether or not the sellers would come back in, because despite the fact that the British Pound is doing much better than most other currencies, the question then becomes whether or not it can actually overtake the dollar.
• With the Federal Reserve out there and showing no signs of slowing down its restrictive monetary policy, it's difficult to imagine a scenario where the US dollar gives up too much strength in the near term.
   

Central Banks

The Bank of England has started cutting rates already, so it's a little bit of a confusing move until you look at the overall length of the trend and the fact that we got a little over extended and then realize that this bounce was probably needed.

Ultimately, this is a market that is currently stuck between the 50 day EMA and the 200 day EMA, which of course is an area where you see a lot of volatility and noisy trading in at times. If we were to drop from here and break down below the 1.25 level, we would not only be breaking down below a significant large round number, but also below the crucial 50 day EMA.

(Click on image to enlarge)

In that environment, I expect the British pound to not only drop to the 1.2350 level, but perhaps even the 1.21 level where we had bounced from. Alternatively, if we turn around and break above the 200 day EMA at the 1.27 region, then we test the 1.2750 level. Once we get beyond that, then I think the trend has completely changed. Right now, though, it looks like a bit of profit taking is going on and there is a lack of upward momentum.

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