The GBP/USD pair has had a roughly couple of weeks as the pair has lost over 400 pips in an almost straight shot down. The concerns of global slowdowns have traders buying the US dollar, and this pair hasn’t been any different. However, the flow of money into the UK form Europe and Switzerland has been picking up lately, and as a result there is a chance that we have gone too far too fast. The Swiss National Bank has commented lately that they are diversifying into the Pound at the moment for example.
The pair certainly is in oversold territory, I don’t need an indicator to tell me this at all. In fact, the Dollar is probably overbought in general, and the Pound had been a bit of a safe haven trade for many Europeans this year, which means there could be a bit of built-in demand. The 1.60 level giving way was a very negative turn of events though, and I bailed on any ideas of going long. Friday however, may have changed this.
Hammer
The hammer that formed for the Friday session is centered at the 1.58 level, an area that has seen support in the past. The pair has fallen so quickly that one of these support levels simply has to stick as a result. Because of this, the fact that the hammer showed up was interesting to me.
The 50% Fibonacci retracement level is right there as well, and this will certainly catch the eye of Fibonacci traders. There are enough of them out there that I suspect a lot of buy orders are just above the candle at the moment. I don’t know about the trend at the moment, we have seen such a significant selloff, but there certainly looks like there is a great chance at a bounce in this market.
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Because of this, I am willing to go long on a break of the top of the range for Friday to aim for the 1.60 level again. As for holding the trade – I will have to evaluate that option at 1.60, but I am not expecting a massive move higher so I suspect I will exit. I think this is a short-term trade, not an investment by any means.