The GBP/USD pair fell significantly during the session on Monday, but turned back around to form a large hammer. With this, it looks like we are trying to break out to the upside but there is a significant amount of resistance at the 1.55 handle. It is of course a large, round, psychologically significant number, and was supportive in the recent past. Because of this, the market will more than likely react to that level. But if we can break above that, that would be a very bullish sign indeed.
On top of everything else though, there is an uptrend line that has offered quite a bit of support over the course of the summer, and as a result the uptrend line should now offer resistance. The resistance will more than likely be significant, so if we can break above there we would have to be very bullish of the British pound in general. After all, that would be a significant breakout, and of course it would be difficult to imagine that most of the markets participants would ignore that.
On the other hand, if we break down below the bottom of the hammer, it should send this market looking for the 1.52 level. That is an area that has been massively supportive in the past, and as a result should continue to be so. You have to keep in mind that the Federal Reserve has been the focus of markets in general, as a potential interest-rate hike is coming. However, there is still a lot of back and forth as far as expectations are concerned, so this will greatly influenced the US dollar in general. In fact, we feel that the market is going to be focused more on the US dollar than anything else, so this will probably be a reaction to the Federal Reserve and whatever the statement is later this week. With this, it is probably only a matter time before we get some type of volatility, but expect choppiness between now and the announcement. We have parameters from which to place a trade, now all we need is a catalyst.