The British pound has broken down rather significantly during the course of the trading session on Thursday as we continue to see a lot of US dollar strength based upon “risk off” trading in general. At this point, the 1.34 level has been pierced quite significantly, and it now looks as if we are trying to break down towards the 1.32 level underneath, which was the recent low. We had been in a significant down trending channel, and now it looks as if the market is likely to continue to see quite a bit of that selling pressure as the initial breakout above the 200 day EMA looks to be a “false breakout.”

Photo by John McArthur on Unsplash

To the upside, if we can take out the 50 day EMA and/or the 1.35 handle, then you can make an argument for at least an attempt to get bullish, but the market is so bearish at this point in time I think it is difficult to get positive anytime soon. Ultimately, I do think this is a market that eventually goes much lower, due to the fact that the US dollar is strengthening against everything else, especially as we have seen so much in the way of hawkish attitude coming out of the Federal Reserve. If the Federal Reserve is in fact going to continue to tighten, and there is nothing that suggests they are not going to, it is likely that the US dollar will be a big winner.

Short-term rallies will almost certainly be selling opportunities in a market that has been bearish for quite some time, despite the fact that we did have a very significant move higher near New Year. While the Bank of England is likely to raise interest rates, they are not tightening in the same manner that the Federal Reserve is, and of course way and people start running for safety in a “risk off environment”, the US dollar is typically one of the first things they go running towards. The size of the candlestick for the trading session on Thursday is rather striking, and it does suggest that we are going much lower. I do believe that the British pound will maybe outperform some other currencies against the greenback, but that does not necessarily mean that that it will be positive. It just might be “less bad” than some of the others.

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