· The British pound fell initially during the trading session on Friday as we continue to see the US dollar strengthen overall.
· A lot of this would be because of risk appetite being destroyed despite the fact that the British pound offers a little bit more in the way of interest rate support than the US dollar does.
It was basically all about running back to the US dollar over the last 2 sessions in multiple currencies, not just the British pound. A lot of this comes down to concerns about inflation coming out of the Middle East via energy cost and the fact that the United Kingdom has to import most of its energy. With this, it puts the United States in a better place as it is a net exporter of petroleum and that of course helps its product.
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All things being equal though, I'm watching the 200-day EMA currently at the 1.34 level and if we can break above there then the pound could go looking to the 1.35 level. If we break down from here though, the 1.33 level is your initial support followed by 1.32.
The interest rate differential isn't enough to get overly excited about, but be aware of the fact that the pound does pay more than the dollar. All things being equal, this is a market that I think is trying to find a bottom, but it probably will take several sessions to make that happen.
If interest rates in the United States start falling, then that helps the British pound as it could go to the upside. If we see the GBP/USD market meltdown from here, then you almost certainly will see interest rates in the United States climbing and that could be a secondary indicator for you to watch.
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