The GBP/USD pair fell at first on the Monday session, but only to bounce and form a hammer at the end of the day. The pair is sitting just above the 200 day EMA, and this will certainly bring out the trend traders as they see this pair rising from here.
The 1.58 level below that is also a massive supportive level, and this is a doubly supportive area because of this. The 1.60 level above has been very resistive, but it looks as if the pair is stubbornly going to attempt to break out at this point. The GBP/USD is usually a risk sensitive pair, so headline shocks out of Europe could reverse the strength, but as the charts look – we have to admit it seems that the next leg will probably be up in this market.
The British Pound is going to be influenced by the issues going on in Europe. The British send 40% of their exports into the European Union, so if there is some kind of meltdown in that region – the Pound could suffer. In general, the world will run to the US dollar in times like that, so it would only make sense that this pair will fall as the Dollar gains against everything else.
However, the pair simply looks strong at this point, and the fact that we have been grinding slowly higher suggests a real amount of pressure to the upside is brewing in this pair. The pair will have to keep above the 1.58 level in order for us to continue to be cautiously optimistic. The 1.60 level above will be resistive, but we won’t consider it broken until we get a daily close above the recent highs, as the 1.650 level seems to be the key to breaking out of the range.
The selling of this pair can only be done if we have a daily close below the 1.58 level, as it would signify weakness in this market that could lead to the 1.5650 level. The move would also constitute a breaking of the bottom of a hammer – always a weak sign. However, if we break above the highs for Monday, we are willing to try the long side.
Written by FX Empire