- The British pound initially rallied on Tuesday but reversed sharply, falling below its 200-day EMA.
- With the Federal Reserve poised to move before the Bank of England, the GBP/USD pair faces growing downside risk toward 1.32 and potentially 1.3150 support.
The pound initially rallied during the trading session on Tuesday, but then fell rather significantly to break below the 200-day EMA. At this point, I have to ask whether the British pound is going to start to fall apart. This currency seems to be in flux, as the British pound has, for the last year and a half or so, been a bit more stable against the US dollar than most of its counterparts. However, over the last couple of weeks, we've seen an acceleration to the downside.
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The Bank of England does not have a meeting this week, unlike the Federal Reserve, so the Federal Reserve might be the next mover of this pair. If we continue to drop from here, the 1.32 level is an area I’d be very sensitive to because it represents significant support. Breaking down below the 1.3150 level could kick off the next leg lower and would usher in a new push to the upside for the US dollar—probably not only against the British pound but multiple other currencies as well.
The US Dollar Has Overperformed Others
The US dollar has outperformed most currencies, and I look at a weakening US dollar during any particular trading session as a potential buying opportunity to get my hands on more greenbacks. The British pound seems to have a bit of a brick wall near the 50-day EMA, which is currently just above the 1.34 level. I think the upside is somewhat limited.
As the US dollar goes, so go the rest of the currencies, and that’s exactly what we’re seeing here. The US dollar is showing signs of life, and it is starting to weigh upon the British pound. Whether we can continue to the downside remains to be seen, but clearly, at this point in time, it’s very difficult for the pound to gain traction against the US dollar.
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