The British pound rose slightly during the day on Friday, grinding towards the 1.28 handle. The 1.28 level is obviously offering a bit of resistance, but it appears that the market is stubbornly trying to break above there.
If we do, I think the market then goes to the 1.29 level above. Alternately, a pullback should look for support near the 1.27 level, as it is an area that offer quite a bit of support on Thursday. The British pound is being supported by the Bank of England being much more hawkish than originally thought, and this of course benefits the British pound in general. I believe that the market breaking out to the upside is just the next step to the market reaching towards 1.3050 level.
Is The Downtrend Over?
The biggest question in this market right now is whether or not the downtrend is over. I believe we are trying to kill it off, and that normally is a very volatile and messy thing. I believe that a lot of longer-term players have already bought into the British pound, and it would not surprise me at all to see the return from time to time to push things in their direction. I think that by the end of the year we could be looking at 1.3450 as a target, or perhaps even higher.
This will of course be accelerated once we get some type of clarity as to what the British government is going to do about leaving the European Union. A combination of that and some stronger than anticipated inflation numbers, and the British pound could sort of new highs rather quickly. Alternately, a breakdown below the 1.2640 level census market looking for much lower levels, the first of which would probably be the 1.25 handle.
Editor’s Note: Equity investors/traders can use the Currency Shares British Pound Sterling Trust (FXB, quote) ETF to take positions in the yen without a FOREX account. The ETF looks to track the price of the British Pound Sterling (GBPUSD), minus ETF fee. The fund seeks to reflect the price of the British Pound Sterling (GBPUSD) with the shares representing a cost-effective investment relative to investing in the FOREX market.
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