Potential signal:
- If the overbought condition continues, you simply must assume that the trend does as well.
- On a daily close above 1.3450, I am a buyer with a stop at 1.3350 and a target of 1.3950 above.
The British pound has slammed into the 1.34 level, but just like we had seen during the previous session, I think we've got a situation where the area is going to continue to be very difficult to overcome. At this point in time, the market participants are probably a little overdone when it comes to shorting the greenback and the British pound won't be any different than anything else.
With that being said, I think the overbought probably leads to a short-term pullback, maybe even as far as the 1.32 level and that of course is an area that I think a lot of value hunters might be looking at. If we were to break down below the 1.32 level, we could see the British Pound fall rather significantly though. And I think at that point in time, this run higher might be just about over. On the other hand, if we were to break above the 1.3450 level, then we'll see the British Pound lie to the upside as the 1.35 level would be challenged and we could go as high as 1.42.
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The Pair is Overdone
All things being equal, though, it is overdone. And just about every time that I hear that the United States dollar is going to end its reign as the world's reserve currency, I know we're getting close to the end. For example, many years ago, I remember the euro trading at 1.60 and supermodels were suddenly demanding to be paid in euros. And we fell precipitously from there and got nowhere close to it. I don't think it's going to be that dramatic this time, but I am starting to hear a lot of chatter from the ignorant online about how the monetary policies are going to change the entire system. I don't think they comprehend how difficult that really is over the longer term. This is a process that takes decades, not weeks.
So, with that being said, I definitely think that international settlements will still be made in the U.S. dollar. And as a result, there will be demand for it sooner or later. We are overdone, as you can see by the zoomed out chart. And I think at the very least, the pullback is more likely than not. Whether or not it becomes a shorting opportunity, I think it gets determined somewhere closer to the 1.32 level.
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