The GBP/USD pair fell significantly during the session on Tuesday, but bounced quite a bit in order to form a beautiful looking hammer. In fact, this looks like we could be starting to form a bit of a base in this general vicinity.
The market has been very weak lately, but the truth is that this market has probably been oversold, at least for the short term.
With this being said, we believe that a break of the highest from the Tuesday candle would be enough to start buying. After all, this type of relentless move normally has basing before a turnaround, and this is exactly what we feel is going to happen. Nonetheless, this could take serious time and we feel that the 1.59 level will offer a nice clean area to look for a breakout above as it would signify a momentum shift. However, we think that this move would take quite a bit of time, and could be several days, if not weeks in the making. In the meantime though, we do see a significant chance to start buying in aiming towards the 1.58 level for a quick 100 pips or so.
As far as selling is concerned, we are little bit reluctant to do so because in order to do so from a technical analysis point of view, we would have to see the bottom of the hammer broken from the session on Tuesday, and unfortunately that’s it’s just above the 1.55 level. This of course is a large round psychological number, and as a result will more than likely see buyers stepping back into the market. Also, you have to keep in mind that we are currently in the middle of the big massive ascending triangle from last summer that sent this pair higher to begin with. In other words, there are a lot of orders down in this general vicinity. It isn’t until we get through those orders that it’s safe to start shorting again, at least from a momentum point of view, and as a result will be difficult.
Written by FX Empire