GBP/USD Forecast September 5, 2012, Technical Analysis

The GBP/USD pair attempted to rally on the Tuesday session, but failed at the end of the day to make the gains stick. The candle that was printed for the session formed a shooting star, and this does look rather bearish at this point in time.

The fact that the 1.59 level is giving so much resistance to this pair is a bit surprising. However, it looks like we may be ready to fall back down to the 1.58 level. If that happens, we should see support at that point and we still feel that the long side is the only way to be on this trade right now.

We think that more and more buyers will step into this market as it becomes increasingly obvious that the Federal Reserve is looking to ease its monetary policy again. As long as this market can stay above the 1.57 level, we are comfortable buying on dips. Obviously, if we can break the top of the shooting star from the Tuesday session it would be a bullish sign. This would essentially have prices slicing through the 1.59 handle, and area that has been rather stubborn.

Looking at this chart, we can base a target of 1.63 upon the height of the ascending triangle that we recently just broke out of. The 1.63 handle may seem a bit high at this point in time, but remember it is essentially where prices fell from at the end of spring this year, just a scant five months ago.

As long as the Bank of England feels comfortable with its monetary policy, the higher interest rate in this differential for the currency pair should continue to accelerate prices higher. Of course, there will be bumps along the road going forward, but at the end of the day traders are looking for yield in this current environment.

Because of that, we feel that the British pound can be bought on dips, especially ones that show signs of support at round numbers. As for selling this market, we have no interest in it until we close well below the 1.57 level.

GBP/USD Forecast September 5, 2012, Technical Analysis

Written by FX Empire