- The British pound did try to rally initially during the day on Wednesday but gave back that momentum and then went falling toward the 1.3450 level.
- The 1.3450 level is an area that a lot of people will be paying close attention to, as it was the previous area of resistance that we had been fighting in April and early May.
- Now that we are approaching that level again, the question of course will be whether or not there is any “market memory” in that general vicinity.
United Kingdom and the United States
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The one thing that makes the British pound a little bit different than most of the other currencies that I follow is that the United Kingdom actually has a trade agreement with the United States, so it should continue to outperform other currencies on the whole, in relation to the US dollar. Quite frankly, this should facilitate more trade between the Americans and the British, which should be a good thing for the United Kingdom, as well as the United States. In this currency pair, we see markets focusing on the interest rate path of both currencies and central banks, and they are about as even as it gets right now, so there’s not a lot to push the markets around.
That being said, you should keep in mind that the US dollar strengthening around the world will have a bit of a “knock on effect” in this market, as it doesn’t operate in a vacuum. This doesn’t mean that the British pound has to meltdown that the US dollar strengthens against other currencies, it just made a “fall less.” This is exactly what we saw last year, so even if this market does break down, I’m not necessarily too excited to short the British pound, not what I kid short something like the euro.
Because of this, I’ll be watching the 1.34 level closely. If that breaks down and we start dropping below there, I probably will short other currency pairs such as the EUR/USD, NZD/USD, and go long in other pairs like USD/CAD, and the USD/CHF pair. It’ll be interesting to see how this plays out, but ultimately, I think we’ve got a situation where the GBP/USD pair could very well end up being a tertiary indicator for other trading.
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