The GBP/USD pair rose during the session on Wednesday, bouncing off the 1.60 handle, proving it to be very supportive. This is the break of a hammer from the previous day that we have been waiting for in order to start buying again. That being the case, we are long of this pair, and fully expect to see the recent high broken to the upside.
Granted, we recognize the fact that this is a somewhat sideways market at the moment, but we do understand that eventually the market will have to make a decision. Typically, what happens is that when a market rises the way this one has, it needs to grind sideways for a little bit in order for more people to push the market higher. Simply put, a market cannot go in one direction forever, and sometimes needs to take a bit of a rest as it can get exhausted after a somewhat parabolic move.
We still think that this market goes as high as 1.65 over the course of the next couple of months, but recognize the fact that it has moved so far in such a short time that the next 400 pips or so could be a little bit choppy. At the end of the day though, the US dollar should continue to depreciate in value as the Federal Reserve has decided not to taper off of quantitative easing, which of course continues to weaken the value of the greenback.
On the other side of the Atlantic, you have the British pound which of course has been rising in general. After all, the Bank of England looks nowhere near easing in any fashion, and this of course makes it a stronger case for a stronger currency than what we are seeing out of the Federal Reserve. With that being the case, it makes sense that this market will continue to grind higher and that every time it dips, it should find willing buyers in order to push the value of the Pound higher against the struggling greenback.
Written by FX Empire