The GBP/USD pair fell during the session on Tuesday, but slammed back into the 1.60 handle by the end of the day in order to form a nice looking hammer. The previous session formed a shooting star, so we think that there is a possibility that we break above the top of that shooting star from the Monday session, and go up to the 1.62 handle before it’s all said and done. Quite frankly, this would just be a return the consolidation that we had been in previously, and therefore it would make complete sense going forward that we could see this. However, we do need to see that daily break and close above the top of the shooting star.
Keep in mind that the Federal Reserve and whether or not he can taper off of quantitative easing will continue to be a question that the markets ask. If they think that the Federal Reserve cannot taper off of quantitative easing, a repricing of the value of the United States dollar course will have to be had. That would of course affect this pair, as it will with anything involving the USD, and therefore the British pound should continue to appreciate.
We believe that this market is ready to go higher, but we need that clearance in order to feel comfortable. If we can get above the 1.62 handle, we don’t see any reason whatsoever why this market will eventually head towards the 1.65 handle, the next natural large round psychologically significant barrier going forward.
As for selling is concerned, although a break lower would in fact be a pretty negative sign, we see enough potential support at 1.5850 due to the gap from a couple of weeks ago, and the 1.5750 level in order to start looking for buy signals as it would show that buyers are stepping back in and supporting the British pound going forward. That is exactly what we would expect to see, so we would not hesitate to take that trade given half of a chance. Selling is not an option at this point.
Written by FX Empire