The British pound initially tried to rally during the week but gave back the gains to crash back into the 1.30 level. This is an area where I see a significant amount of demand, so quite frankly I do expect a bounce. However, we need some good news out of the United Kingdom to push this market higher. Because of this, I would anticipate sideways action more than anything else for the next couple of weeks, but the move higher could be explosive. Even if we break down, I think there is enough support underneath to keep this market somewhat afloat. The next move of course would be to the 1.25 handle, but I see that level is even more supportive than the 1.30 level. I also see potential support at 1.26, and at 1.29 as well.

Because of this, I suspect that longer-term traders are trying to buy the British pound “on the cheap” at these levels, thinking of it as value. This is a classic value investor play, because historically the British pound is very cheap. When you look at this chart, and although I’m not an Elliott Wave trader, you can also make an argument that we are finishing Wave 2. Although I personally would never use that to make a trading decision, it’s always good to see how some other traders may see the market. With this, I think that the real danger is probably to the upside but you’re going to need to be patient.

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