GBP/USD Daily Outlook Jan. 23, 2012

By: Christopher Lewis

GBP/USD has been a very bearish pair for quite some time now. The last couple of months have seen unrelenting selling of the pair every time it has tried to rally, which makes the move during the last week so impressive. The fact that the bulls could step in and turn things around so decisively shows real determination, and signals that perhaps there is more to this move than a slight pullback. However, the trend remains unchanged overall.

The pair is another “risk-sensitive” pair that allows us to see how traders feel. Granted, it is not as sensitive as the AUD/JPY pair that I wrote about for the session as well, but it still does tend to mimic the stock indices around the world, going up when they do and vice versa. With the suddenly found enthusiasm for all things risk-related over the week, this pair produced fireworks.

Pound refuses to go quietly


The Pound was on the ropes coming into the week, as the 1.53 was being tested. This was important as the level would signal a breakdown of the head and shoulders pattern that can be seen on the longer timeframes. In fact, I was ready to sell this pair hand over fist if we got a daily close below that level. However, as you can see – we never did, and in fact the 1.53 brought in a lot of buyers it seems.

GBP/USD Daily 1/23/12

The pair managed to break above the 1.55 area as well, one that was the “start” of the support zone that lead all the way down to the 1.53 level. This area was a place where we should have seen significant resistance, but gave way fairly easily in hindsight. With this in mind, we had a trend line that was forming just above it, and that was cleared on Friday as well. Adding to the bullish case is the fact that the candle on Friday closed at the very top of its range, and we have a very bullish look to cable all of the sudden.

Above the current area, the 1.58 level sits as massive resistance from the previous consolidation in this market. The level is actually 100 pips wide, and starts somewhere around the 1.57 level. This area is where I see this pair going next, before eventually having to reassess the strength at that point. I don’t see it breaking over that level, but in the mean time, it looks very bullish and destined to try to get there.

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.