The British pound initially rallied during the trading session on Friday but gave back gains as we tested the 50-day EMA.
Ultimately, this is a market that I think is going to continue to be very noisy, but if we can break above that 50-day EMA, it is possible that we could go looking to the 1.35 level.
The 1.35 level is an area that will remain a bit of a psychological barrier, I think.
We will see whether or not we are going to give you an opportunity here to break out above there and start shorting the dollar. The interest rate differential is, of course, going to be in favor of the British pound—not by a lot, but enough that it keeps the British pound a little bit more resilient against the dollar than many other currencies. If we fall from here, the 200-day EMA is going to offer support underneath. Breaking that opens up a drop down to the 1.33 level.
Market Volatility and Trading Strategy
All things being equal, this is a market that I think will remain very noisy and very volatile. The British pound is a currency that is kind of similar to the dollar in the sense that the central bank may have to stay tighter for longer, and because of that, I expect to see a lot of compression, a lot of sideways action.
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In fact, if you are a short-term day trader, this is probably your currency market. Otherwise, you are going to be hard-pressed to find a reason to get overly aggressive. At least not until we get out of this 200-pip range, which, by the way, we are right at the middle. So, this is no man's land.
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