- The British Pound has initially tried to rally during the trading session here on Wednesday to break above the 50-day EMA, but it looks like we are giving back quite a bit of those gains.
- It's interesting as we have seen a lot of noisy behavior and I think the fact that we have given back so many gains tells me that the British pound just isn't ready to take off against the dollar yet. With the Federal Reserve interest rate cuts, since then we've seen the US dollar strengthen.
- Goes against everything you hear, I understand. But when you look at history, quite often, once the Fed starts cutting, especially if they do several different times over the course of a handful of months, that's pro-dollar. And that's because people run to treasuries. They need safety.
Running to Safety?
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Remember the old adage, when the United States sneezes, the world catches a cold. That's about to happen, at least from what I see so far. If that's going to be the case, I anticipate a massive turnaround in the US dollar, and I do think that there's real risk to the downside. If the British pound breaks down below the 1.34 level, then I anticipate a move down to the 200-day EMA, which is currently at the 1.3255 level, and then after that, the 1.32 level would be targeted. On the upside, the 1.36 level has offered significant resistance. And really at this point, I'm very leery of buying this pair until we clear that area.
With the U.S. government closing down, we do not get a jobs number on Friday, at least unless, of course, they somehow come to terms between now and then and get everybody up and running. So that major catalyst may not be out there, at least not in the short term. I think at this point, what you're starting to see is money's flowing into the U.S. Treasury markets, which strengthens the dollar. You have to have U.S. dollars to park your money there. That could be a theme for a while. We'll just have to wait and see. But if the economy really starts to turn south in America, everybody else will pay eventually. It comes down to a little bit of time. The question is, have we already seen that with the idea of Federal Reserve interest rate cuts, now a known quantity? I'm watching this pair specifically because the British pound has outperformed many of its other contemporaries against the US dollar. So, if this one goes, other currencies like the Aussie dollar, New Zealand dollar, Canadian dollar, Euro, Japanese yen, probably will all find differing amounts of pain themselves. So, this is a very important signal to me only because the pound has done so well that if it suddenly starts tanking, I suspect everybody else is going to be doing even more of the same.
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