The British pound has been pretty noisy on Friday, as the markets continue to look for a reason to break out of a short-term compression area.
GBP/NZD
The British pound has gone back and forth against the New Zealand dollar on Friday as we continue to dance around just below the 2.30 level and just above the crucial 50-day EMA. We had recently seen a huge surge higher by the British pound, but the last 2 weeks or so has been a bit of a pullback.
The question now is whether or not this pullback has enough support behind it to send the market higher. For what it is worth, we find ourselves right around the 38.2% Fibonacci retracement level from that move to the upside, so it will be interesting to see if we can hang on here.
CENTRAL BANK DIVERGENCE AND TECHNICAL SUPPORT
If we can clear the top of the inverted hammer from the Thursday session, I think at that point in time it is very likely that the British pound continues to rise. The New Zealand dollar is a bit of an outlier in the sense that, despite the fact it is a commodity currency, there is not a lot of interest in it in comparison to some others when it comes to the interest rate differential.
For example, you have the Australian dollar which has attracted a lot of inflows because the Reserve Bank of Australia has in fact been tightening monetary policy. By contrast, the central bank in New Zealand has been decidedly dovish, and I think that continues to play out here.
If we get any signs of British pound strength in the forex world, this might be a nice way to play that on the outside instead of risking going up against the US dollar and Federal Reserve monetary policy. If we were to break down below the 50-day EMA, then I would be watching the 200-day EMA for support near the 2.28 level, which is where the 50% Fibonacci retracement currently resides.