GBP/USD Forecast May 21, 2012, Technical Analysis

The GBP/USD pair has been viciously sold off over the last several sessions, but the Friday markets saw a bit of a reprieve. The daily candle closed to form a bullish hammer at the 1.58 vicinity, and the site of the 50% Fibonacci retracement level. The market looks set to bounce.

Whether or not the market can sustain a rally is a different question though, and as a result we like the idea of buying for a short-term trade only. The fall has been rapid, and because of that there will have to be a bit of a bounce, and this candle formation certainly suggests that it could happen in the next trading day or two.

The 200 day exponential moving average is just above, so this area could turn into resistance as the longer term traders will pay close attention to the indicator. The 1.60 level is a hurdle as well, and the area between 1.59 and that mark has plenty of “noise” in it. Because of this, traders will have to be able to accept volatility in the markets going forward.

The hammer itself shows that the support is coming back, and perhaps we have gone too far in such a short time. The breaking of the top of that hammer is a buy signal, but just as equally the breaking of the bottom of that hammer signals a selling opportunity. Because of this, there is a real chance that the Monday session in this pair is a major one. With that being said, it should be interesting to see how the market measures risk. After all, risk assets in general have been oversold, and this market is no different.

The move to 1.60 will more than likely be choppy, but it would validate the move from the 1.52 level over the last several months. If we can break above the 1.6050 level – this pair should continue to be bullish for much longer. Any hints of quantitative easing by the Federal Reserve could be the last nail in the coffin for the Dollar as it related to the Pound.

GBP/USD Forecast May 21, 2012, Technical Analysis

Written by FX Empire