The GBP/USD pair had a strong session on Monday as the 1.60 handle offered support in order to push the pair back towards the 1.61 level. This pair is a bullish market as far as we’re concerned, and this analysis is due to a set up that actually started last summer.
As you will have undoubtedly heard us talk about previously, there was an ascending triangle that had formed over the summer in this currency pair. The top of the triangle was at the 1.58 level, and as such when we finally broke above that level we measured the triangle and suggested that the pair was going to the 1.63 level. It did in fact do that, and as such the target of the triangle was met.
Since then, we’ve seen the pullback from that level that retested the 1.58 level back in November. This is a typical “breakout and retest” of a resistance level for support, and is one of the most basic plays and technical analysis. Because of this, we feel very strongly that this market should continue much higher. In fact, I believe personally that this pair reaches the 1.70 handle before the end of next year.
With the Federal Reserve meeting this week, is very possible that during the Wednesday question and answers session that the Federal Reserve Chairman suggests that the central bank is willing to do more quantitative easing. If that happens, we think that the US dollar will weaken against most currencies, and the British pound will be no different.
Looking at this chart, we think that a break above the hammers that formed last week would be a very bullish sign, but nonetheless we believe we will eventually go higher even if it is a grind. This is a longer term trade for us, and a play on what we feel will be one of the themes of 2013: A stronger British pound. Having said that, as far as selling is concerned we do not consider it until we get well below the 1.58 level.
Written by FX Empire