The British pound initially fell during trading on Thursday but turned around to show signs of strength as we had bounced from the 50-day EMA and cleared the 1.35 level.
This is a market that continues to focus on central bank differentials and as we had the FOMC meeting on Wednesday and the Bank of England meeting on Thursday, it looks like the market has decidedly determined that the British pound is a stronger currency.
At this point, I think we are going to go looking at the 1.36 level as a potential target. And if we can break above there, then we really could start to move higher, maybe the 1.37 level. Short-term pullbacks I do think have support, but pay attention to the interest rates in the United States, especially the 10-year yield as breaking above the 4.3% level has caused chaos previously, despite the fact that we are above there right now and we are starting to drift lower and that has been helping the pound also.
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Geopolitical Volatility and Bond Yields
I think more likely than not we stay in a bit of a consolidation range with an eye on eventually breaking higher; we just don't have the necessary momentum at the moment to make that happen. I am looking at the GBP/USD pair through the prism of what the bond markets are doing, especially with the nonsense coming out of the Middle East and that remains a major problem.
As long as traders continue to react to the latest headline coming out of Tehran or Washington, it will make for a very volatile situation for all assets, but this is a situation where it looks like we have a well-defined trend over the last couple of weeks of going sideways.
And despite the fact that we got very positive at one point during the session on Thursday, I think it's likely that it's not enough to push things to the upside, at least not in the short term.
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