As far as I can see, the GBP/USD pair is starting to show signs of life again to the upside. The market initially sold off during the session on Tuesday, testing the 1.63 level for support. That level did hold as support, as you can see we bounced and formed a nice-looking hammer. With that, the hammer suggests that we are going to at least go to the 1.65 level, the area that repelled the market previously after the Scottish Independence Vote was announced.
Looking forward, I think that a true breakout is anything above 1.6650, and at that point time I would anticipate this market going all the way to the 1.70 level. Looking at that though, we are probably getting a little bit ahead of ourselves. After all, there’s a lot of noise between here and there, but at this point in time I think the 1.63 level looks very healthy as far as support is concerned, and even more intriguing considering it was previously a gap. Quite often, that ends up being an area that once broken turns the other way. In other words, it was resistance but now it should be support.
Shape of the candle helps.
The shape this handle is just about perfect. Because of that, it helps me with my confidence as far as putting money to work. Even if we get a pullback at this point in time, I would look to see supportive candles on shorter-term charts just above the 1.63 level in order to go long as well. In fact, I would look at that as a better way to enter the market if I get that opportunity.
Although the US dollar continues to be one of the favored currencies around the world right now, the British pound is a little bit of an outlier when it comes to that. After all, the United Kingdom is closer to tightening than most other currencies out there, and there is an interest-rate differential in favor of the British pound at the moment. If they both start tightening, that interest-rate differential should continue to favor the British pound over the longer term, and that’s why I feel that this market is probably going to buck the trend and go against the US dollar given enough time.
