The GBP/USD pair went back and forth during the course of the day on Tuesday, and ended up forming a nice hammer for the day. We are testing the resistance above, we feel that it is only a matter of time before this market goes higher. In fact, this could be one of the best trades in the near term as it appears that the so-called “smart money” might be getting involved in the British pound ahead of the Scottish Independence Vote.
With all the drama and concern about the Scottish possibly leaving the United Kingdom, a lot of people have simply sold this pair hand over fist. The reality is that it is oversold, and there is a good chance of the Scottish choose to stay within the United Kingdom. If that’s the case, we fully anticipate that the British pound will skyrocket in value in a knee-jerk reaction. With that being the case, this has a lot of potential for an upward move, and above the 1.63 level, the Will have not only been filled, but been broken above. Ultimately, that should send the market much higher, at least testing the 1.6550 region.
The simply candle is positive, and as a result we think that the buyers below will continue to push this market. Pullbacks at this point time should be nice buying opportunities and we also recognize that although there is the possibility that the vote goes against Spain in the United Kingdom, quite frankly most of the damage probably has probably already been done. With that, we would fully anticipate seeing the market bounce from here, and aggressively so.
With that, we are marketplace diffuse small positions on the long side trying to get ahead of the vote. Expect a lot of volatility, but once the results are released, you can expect a pretty significant move in one direction or the other. We do have the 1.60 level below which of course will be supportive, so ultimately we believe that the market is reasonably supportive to begin with.