I’m looking for an opportunity to fade this short-term bounce.
The interest rates in America have been sliding, so that of course has a certain amount of negativity in the US dollar as well. Because of this, the British pound has gotten a little bit of a boost. That being said, there are still a lot of concerns out there and of course the English have their own issues as well. With this being the case, I think it’s more or less going to be a “fade the rally” type of situation. If we were to break down below the 1.21 level, then it’s likely that we drop down to the 1.20 level. The 1.20 level is an area that has been important more than once, so if we were to break down below there, it’s likely that the market then drops down to the 1.18 level.
The 1.18 level being broken to the downside would open up the possibility to see this market break down rather drastically. At that point, I would expect the British pound to go looking to the will .16 level, followed by the psychologically important 1.15 level. Anything below there would be a massive move just waiting to happen. I think we are more likely than not going to see a little bit of sideways back-and-forth action, but I don’t necessarily think that is going to be easy to break this market in general.
Keep an eye on the 10 year yield, because that has a lot to do with where we go next. As long as the 10-year yield doesn’t completely collapse, there will be a bit of fight left in the greenback. This will be especially true if we start to see people run towards the bond market for safety, which can change the overall attitude. Ultimately, I’m looking for an opportunity to fade this short-term bounce.
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