The GBP/USD pair originally fell during the Monday session, but shot straight up like a rocket by the end of the day. This was predicated by the suggestion by Ben Bernanke that “Quantitative Easing 3” isn’t off the table, and the markets rallied in risk mode in reaction. The GBP/USD being a risk sensitive pair, it makes sense that the pair would rally.
The 1.60 level above is large and could determine the future of the pair. While we have seen this area as an “ultimate ceiling” in this pair, we now think that perhaps it is about to give way. The candle for Monday certainly looks bullish to say the least, and we are dangerously close to that level in reaction. The 1.60 level will be watched by us for either signs of weakness or a breaking of it and a daily close above it. If we get that daily close above it – we would have to admit that the bears have just lost, and that the pair is going much higher in the meantime.
The Pound will continue to be propped up by the Federal Reserve’s dumping of the Dollar, and we suspect that the upside is the real risk at this point. The downside can only be explored if the 1.60 level holds and possibly prints something along the lines of a shooting star or bearish engulfing candle. Until we get that though, as a general statement we are not willing to test the bulls as they certainly took control on Monday.
The next resistance level above this mark is the 1.62 level, and we think it should be tested rather quickly is the 1.60 level gives way. The 1.65 level is above that, and we think that it will be the longer-term target on the bullish side. The breaking of the 1.58 level would have to be accomplished on the daily close in order for us to consider selling, as this would show a major failing in the bullish momentum. All things considered though, we believe the bulls are about to take over.
Written by FX Empire