The British pound has been all over the place during the trading session on Tuesday, as we are testing major support in the form of the 1.21 level. It's worth noting that the PPI numbers in the United States came out at dead flat instead of 0.2 percent, like expected. Therefore, I think we have a certain amount of US dollar negativity, in the short term. That might have been part of the rally here, but quite frankly, this is a market that's oversold. It's worth noting that the euro has absolutely taken off to the upside during the session against the greenback, but the pound still can’t. And what that tells you is that people are still not convinced about the British government doing something about its finances.
Interest rates in Britain continue to be very high, and unlike the United States, it doesn't have anything to do with the fact that the Bank of England is going to have to stay tight with its monetary policy. It has more to do with the fact that traders don't like the budgetary issues in that country. That's a bad thing.
Oversold? Of Course.
That being said, we are at an extreme low, so it wouldn't shock me to see a bit of a bounce, but I'd be looking to short this pair near the 1.2350 level and again at the 1.25 level at the first signs of exhaustion. If we turn around and break down below the 1.21 level, then it could open up a move down to the 1.20 level. The British pound, of course, has been a bit of a punching bag as of late, so the alternative scenario instead of breaking down or fading the rally could just be that we sit here for a while, much like we did back in the end of 2023. In order to do so, it's going to expend a lot of energy, but you never know, it could be the beginning of a basing pattern. The last two candlesticks would suggest that, but unfortunately, they're just the last two candlesticks out of what I would be paying attention to in the form of probably the last 70 or so candlesticks. So, we have a long way to go to start thinking about consolidation, but we've at least made the first steps towards it.