• The British pound has rallied a bit during the trading session on Friday as we continue to see a lot of noisy behavior.
• All things being equal, this is a market that is trying to consolidate just below the 50-Day EMA, and an indicator that I’ve been watching for several sessions.
• If we can break above the 50-Day EMA, then it opens up the possibility of a move to the 1.15 level. The 1.15 level has been important in the past, so I think it makes a nice target.

(Click on image to enlarge)

On the downside, we have the 1.13 level offering support, with the 200-Day EMA underneath offering a significant amount of support. If we were to break down below the 200-Day EMA, then it’s likely that the market could fall apart, and it could send the British pound reeling. However, nobody really wants to own the Swiss franc, due to the fact that the interest rate coming out of Switzerland is so anemic. The only reason that we would see the Swiss franc strengthen it is probably based upon the idea of “risk off trading.”

Interest rate differential

The interest rate differential continues to be a major driver of this pair and you have to keep in mind that you get paid to hang on to this market. After all, the swap at the end of the day is relatively strong, and therefore I think it makes a lot of sense that we would see institutional traders hanging about this market, taking advantage of what the market offers, and the fact that quite frankly the Bank of England seems to be a lot tighter than many of the other major central banks, but it’s also worth noting that we have seen both the bank of Canada and the European Central Bank cut rates since the Swiss have, so because of this I think a lot of traders are trying to extrapolate that everybody is going to be cutting.

As long as we can say above the 1.13 level and the 200-Day EMA, I was still continuing to look at the market as one that I am trying to buy dips in, despite the fact that we have recently seen such a massive selloff. That doesn’t mean it will be easy, just that I will be looking for buying opportunities.

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