The GBP/USD pair initially fell during the course of the day on Monday, but found enough support to bounce and close near the 1.6350 level. The resulting candle is a hammer, and as a result it looks like we could bounce again as the fears in Great Britain are subsiding a little bit.
We suggested on Friday the perhaps this market was ready to consolidate a bit, so we think that on a break above the top of the hammer, we have a short-term buying opportunity. We recognize that the 1.65 level will probably cause a bit of resistance, and as a result it’s probably one of these trades that either you are in right away, for you simply miss it.
For the longer-term perspective, we need to get above the 1.6650 level in order to feel comfortable going long. At that point in time, we think the market would more than likely continue to climb towards the 1.70 handle. On the downside, we need to get below the 1.62 level in order to start selling, and at that point time we think the downside to be somewhat limited. We would probably find significant support at the 1.60 handle, and as a result we think that selling is going to be a much more difficult proposition, at least at this level or just a bit lower.
Looking at this chart, it does look like it’s going to be a bit choppy nonetheless, so with that being said we are very cautious about trading this pair, but do recognize that the British pound has been oversold recently. While the US dollar continues to remain the favored currency by most traders around the world, the British pound has been a little bit of an outlier in the sense that it has been stronger than other currencies such as the Euro. This is definitely true one see you have the Japanese yen as well, and with that he feel that this market could in fact go higher from here. However, the matter what happens it won’t be easy.
