The GBP/USD pair rose during the session on Monday, bouncing off the 1.60 handle, and showing that the area is in fact supportive. We had suggested previously that this area might be a great place to buy the British pound, and although we have not necessarily broken out to the upside completely, we are starting to see signs that idea of buying in the general vicinity was the correct one.
With that being said, we are bullish of this pair. The British pound has the potential to go much higher, especially if the monetary policy statement this week suggests that the Bank of England cannot do anything to expand its quantitative easing programs, something that we firmly believe. On top of that, you have the Federal Reserve refusing to taper off of quantitative easing, and that of course is dollar negative. In fact, a lot of economists now believe that the Federal Reserve will be able to cut back on quantitative easing until at least 2014, and possibly late end of that year on top of everything else. That of course will continue to hamper any type of recovery that the US dollar has, especially against European currencies such as the Pound and the Euro.
Going forward, we suspect that the 1.62 level will be the next target, and if we can get above 1.63 we think that this market could really take off. At that point time, we could be talking 1.65 relatively quick where there will be a significant amount resistance based upon the large round psychological significance of that number. Expect a lot of volatility, but in the end we believe that this pair is firmly bullish and we are simply confirming that at the 1.60 level as the buyers stepped into the market in order to solidify the original move.
In fact, we believe that this pair should be bullish at least till the end of the year, and possibly even longer than that. Expect pullbacks to be met by support and to be treated as potential buying opportunities going forward.
Written by FX Empire