The GBP/USD pair fell during the balance of the Tuesday session, but got a significant bounce from the 1.60 handle in order to form a wicked looking hammer. This has been a very bullish market in the past, and as such we think that we are starting to see a base being built in this general vicinity.
The candle gives us a bit more confidence in buying the British pound now, as we had been a little shaken in our opinion of it recently. However, the 1.60 handle offering solid support suggests that more buyers are stepping into the market as we approach it.
The Bank of England continues to hold its monetary policy still, and the Federal Reserve continues to try to crush the dollar. With this in mind, it’s hard to think that this pair will fall far and less we get some type of systematic shock again. Needless to say, that is possible with the situation in Europe, and it will more than likely be headlines out of the continent rather than the British Isles that move this pair when things go wrong.
Looking forward, we think that the 1.70 level will still continue to be targeted overall. It may be the late part of next year by the time we see it, but it does seem destined to happen at this point in time.
If the 1.60 level does give way to the sellers, we think that the 1.58 level is even more significantly supportive, and as such think that we could bounce from that level just as easily. In fact, we think that area is where the real push began. We broke out of an ascending triangle from the summer, and then of course measured to the 1.63 level. We hit that level, and now we have pullback roughly 50% of the way from the breakout. This naturally will attract buyers, and as such this may be what we are starting to see. With all this in mind, we are buyers of this pair on the margin, and would do so on a break of the Tuesday highs.
Written by FX Empire