The GBP/USD pair fell during the session on Friday, but had enough buyers come in late during the session in order to push the market much higher. In the end, the market formed a beautiful hammer, which shows support down at the 1.56 level. If you look at this chart bank in the late part of the month of April, you can see that was resistance previously, so it makes sense that an offer support now. The hammer suggests that we are going higher, and as a result a break of the top of it leads to a move towards 1.60 in our opinion.
Normally, when a hammer gets broken to the downside we would become voracious sellers, but in this particular case we suggest that it isn’t until you get below the 1.55 handle that you can even consider selling the British pound, as it has been so strong recently. Also, that area has been rather supportive and resistive several times in the past, and therefore there should be large clustering of orders in the general vicinity.
Is because of this that we will not sell until we close well below that handle, on at least the daily chart. On top of that, we would prefer to see a move below the 1.5450 level as it would show that the support level has been broken down. More than likely, we think that any move towards that area will find a significant amount of buying, pushing markets higher. In fact, we essentially have two different “buy zones” for this market at both the top of this hammer that printed for Friday, and the 1.55 level at the moment.
On the other hand, if we did get that break down that would suggest selling, we think that the 1.5250 level should offer plenty of support as well, as it was previously so resistive. The markets have been a bit overdone lately, so pullbacks will more than likely do nothing short of offering buying opportunities. Pay special attention to the FMOC meeting later this week, as it will more than likely have a significant effect on all pairs that have the USD in them.
Written by FX Empire