By: Christopher Lewis
If you had a chance to watch yesterday’s video on the GBP/USD pair, you will have seen that the 1.59 level was one that I had concerns about. The rumored agreement between Athens and the Troika on Tuesday had the markets in a “risk on” mood, and the Pound gained.
The United Kingdom has a lot at stake when it comes to the European Union and its future. The EU is the destination for a little over 40% of the exports out of Britain, and as such the world would be concerned about the UK economy as an extension. The banks in London are also knee-deep in EU finances as well, and as long as there is a risk of default – the banks could be vulnerable in the UK on the whole.
The British Pound has skyrocketed in value lately, barely pausing to stop as it climbs against the Dollar. In this backdrop, it has been difficult for many traders to get involved as it simply seems to have “run away”. The short pause at 1.58 really was insignificant in comparison to the massive spike we have seen over the last three weeks or so.
1.59, 1.58, 1.57…..
The pair desperately needs a pullback at this point. As I stated yesterday, even with the hammer from Monday, it was very difficult to go long at this point as the 1.59 level looked to be potential resistance. Even with the up move, the risk and reward was simply backwards and as a result it was a bit on the risky side to go long.
.jpg "GBP/USD Daily 2/8/12")
The pair would be an interesting buy on a pullback, and I have some area that I will be looking for that to happen. The 1.58 level is an obvious one and my least favorite though. The 1.57 level below looks a bit more important to me as it is the top of a massive consolidation area, and the 1.56 level marks a break of the January 30th hammer. Any of these levels could be a potential trade to the long side if we have a hammer, bullish engulfing, or just a larger green candle. I will be looking for these going forward and am going to be weary of buying at these lofty levels. A sub-1.56 level close has me selling this pair.