The GBP/USD pair initially fell during the session on Wednesday, but as you can see we bounced yet again in order to form a hammer. This market simply looks like it does not want to fall, and as a result we feel that the buyers are certainly still in control even though the market has struggled to take off at this point. With this many cameras in a row, it seems almost impossible for this market to break down, and it seems even more likely for it to break back down below the 1.70 level, something that would have to happen before we would even consider this market been able to be shorted.
Ultimately, we think all of these hammers should eventually be broken to the upside, and a move above the 1.72 level should send this market looking for the next major resistance barrier, the 1.75 handle. That area should be rather resistive, but ultimately is less resistive than the 1.70 handle, but a pullback from that area would be expected. We will more than likely have to build up a little bit of momentum to break out, just as we had to with the level below.
Speaking of the level below, the 1.70 level of course in our opinion extends all the way down to the 1.69 handle, as there seems to be quite a bit of support in that general vicinity. We don’t think that the market will be able to break down below this pair, and therefore think of it is a “floor” for the British pound. On top of that, the British economy seems to be coming out of recession and economic numbers are better than anticipated. Spreads between the bonds and both countries continue to favor written, and therefore should favor the Pound going forward as well.
Because of the multiple handles though, the market looks as it is a “one-way bad”, and therefore I believe that a lot of traders are going to come back into this market place every time it dips, and should continue to have short-term support, ultimately driving the trend higher.
