The GBP/USD pair initially tried to rally during the course of the day on Monday but found the 1.55 level far too resistive to continue going higher. In fact, we did up pulling back enough to form a shooting star, and that of course is a fairly negative candle. We don’t look at this is a massively bearish sign though, we believe is that this market will simply continue to bounce around in the consolidation area that we have been in for some time. Because of this, we believe that short-term traders will probably short the market on a break down below the bottom of the candle, and then eventually go looking for support near the 1.52 region.
If you can keep your position small enough, this is exactly the type a volatile consolidation that would be excellent to trade from a short-term perspective. We believe that this market will continue to offer quite a few opportunities to trade back and forth, but we would advise against using a large position as this kind of choppiness, although somewhat predictable, it can suddenly turn against you. After all, capital preservation is one of the paramount tenets of trading, and something that we most certainly subscribe to here at FX Empire.
Ultimately, we do recognize that eventually we can break above the 1.55 handle that would be extraordinarily bullish for the British pound. At this point in time, we would not be surprise at all to see that and would not hesitate at all to start buying at that point in time. If we broke down below the 1.52 level though, there is still a significant amount of noise going down to the 1.50 handle. With that in mind, it is a bit difficult to imagine shorting this market below there anytime soon. Once we get to the 1.50 level break below there, it of course is a completely different scenario. In the meantime though, we think short-term sellers may profit from what looks to be a pullback from significant resistance at a large, round, psychologically significant number.