British pound rallies against the US dollar on Wednesday

The British pound rallied quite nicely during the session on Wednesday, reaching towards the 1.36 level. I see more resistance at the 1.2650 level as well, as it is an area that has been both support and resistance in the past. I look at this uptrend line and recognize that if we break down to a fresh, new low, it’s very likely that this market will unwind rapidly, perhaps down to the 1.33 level, and then eventually the 1.30 level underneath, which of course is a large, round, psychologically significant figure in a number that has attracted a lot of attention in the past.

The alternate scenario is that we clear the 1.3650 handle on a daily close. If we do, then I think the market probably goes towards the 1.38 handle above. After that, I look at the 1.40 level as the next stop. Ultimately, if we were to clear that level then I think the market continues the longer-term uptrend with confidence. Until then, I think there are a lot of concerns and a lot of noise that will affect these markets. I recognize that the Bank of England looking likely to keep interest rates lower for the longer-term will continue to weigh upon the market. But I do think that longer-term people are starting to look at the British pound as something that is a bit oversold. I expect a lot of noise over the next couple of sessions, but we have a couple of clearly defined levels that can fire off the next trade.