- The British Pound faced pressure on Friday, rebounding slightly later in the session, but it remains weak overall.
- The 1.32 level serves as key resistance, with potential for a short-term bounce, though strength in the U.S. dollar limits upside potential.
The British Pound fell during the trading session on Friday but saw a modest pushback to the upside later in the day. The 1.32 level above is a large, round, psychologically significant figure and an area that has been important previously. If we do get a bit of a bounce, it’s likely that the market would start selling off based on exhaustion.
If we can break above the 1.32 level, then the 200-day EMA could be targeted, which is near the 1.3275 level. It’s really not until we break above all that that I would consider buying the British Pound, as it has been an underperformer for a while. That could very well continue going forward. After all, the British Pound now suffers at the hands of expectations that the Bank of England may have to loosen monetary policy fairly soon, as economic numbers out of the United Kingdom have been less than stellar.
Federal Reserve Holding the Line
Furthermore, the U.S. dollar is likely to continue to see strength due to the fact that the greenback is backed by a central bank that isn’t necessarily looking to cut rates anytime soon or at least has come out and squashed expectations that an interest rate cut in December was a done deal. As long as there’s a bit of uncertainty there, it makes sense that the U.S. dollar might strengthen.
Additionally, the U.S. economy is stronger than the United Kingdom’s, meaning investment in the United States makes more sense. There are also foreign inflows into the U.S. Treasury market again, which demand dollars as well. While it does look like the British Pound could bounce from here, that bounce is more likely to end up being a selling opportunity at the first signs of exhaustion.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
