The GBP/USD pair fell initially during the session on Monday, but for the second day in a row bounced enough to form a hammer. That hammer of course suggests that there are buyers below and the fact that we are now testing previous resistance as support is simple classic technical analysis. Because we have formed two hammers in a row, the market looks like it’s ready to continue going higher from here. However, that’s not to say that this market has a clear move higher, it’s probably going to be fairly volatile.
The 1.55 level above was previous support so it should now be fairly resistive overall. With that, we feel that the market will more than likely try to reach that level, but it’s very difficult to imagine that we will break above there anytime soon. After all, the market is still in a downtrend even though we have broken out of the shorter-term consolidation area. Ultimately, we feel that the British pound is a bit of an outlier as far as Forex markets are concerned, but there is still the strength in the US dollar to contend with, thereby making this a market that might be slightly positive, but it is going to have a fight on its and the go much higher.
Any pullback at this point in time will more than likely have a lot to contend with as the 1.50 level below should be massively supportive and there is a lot of noise between here and there. With that, there’s no real way to sell this pair as the noise will more than likely continue to cause a lot of problems for the sellers. The 1.50 level below is a large, round, psychologically significant number of the up most important, and as a result I believe that there will be plenty of buyers below to pushes market higher every time we test that area. Because of this, I really can’t imagine selling this pair as we will more than likely find ourselves just playing a range going forward.