The GBP/USD pair fell during a large portion of the session on Wednesday, but as you can see bounced off of the 1.63 handle in order to form a nice looking hammer. This hammer is preceded by two shooting stars though, so we have to think that it isn’t necessarily a signal to start buying the British pound, rather a sign that the market is going to meander around this general vicinity, and probably consolidate between now and the jobs number coming out of the United States.
That being said, the British pound continues to be one of the stronger currencies that we follow, and therefore we do believe that the market is eventually going higher. A break above the two shooting stars would be a very significantly bullish sign, and have us buying the British pound yet again. More likely though, we will see sideways action for a little while, as the market tries to take a rest after the strong move higher.
Look to the Federal Reserve and its statements to be a potential anchor around the neck of this market, but ultimately we believe that it’s going to take something very special out of America in order to make this pair turned back around for any length of time. We believe that the pullback probably has more to do with approaching the psychologically significant 1.65 handle than anything else, and as a result recognize that break above that handle on a daily close would be a significant move, and send this pair looking for the 1.70 handle before was all said and done.
Even if we pullback from here, we still expect to see the 1.62 handle be very supportive, and that a lot of value investors will be buying the British pound down at that lower level. It was the site of the most recent breakout, and the convention wisdom says that an area that was once resistance should end up being supportive. So because of that, we feel that this is a “buy only” type of market at the moment.
Written by FX Empire