The GBP/USD or “cable” pair had an interesting session on Tuesday, as it both rallied and then failed. The pair trying to get over the 1.59 level again, but failed and fell in order to form a shooting star. This candlestick formation is normally very bearish, but with the recent action overall in this pair being so strong, I am not looking to sell this pair rather seen it as a potential pullback from which to buy.
We recently had broken out of the ascending triangle that had formed most of the summer. The fact that we got out of the 1.58 level and retested for support already is a good sign, as it is classic technical analysis. Now that we have the shooting star, it does look like we're going to consolidate and go sideways a bid for the short term. This is perfectly fine with me, as the volumes are just now starting to pick up from the summer holidays.
A pullback to the 1.58 level that shows some type of supportive candle is exactly what I would like to see in order to go long this pair. I also would buy as low as 1.57, as it was the beginning of the "zone" that held prices down within the triangle for so long.
Classic technical analysis, 1.63 is the target
The triangle that formed over the summer measured a move up to the 1.63 handle. This level just happens to be the highs from which it fell to begin with. I believe that this market should continue much higher, but there are a lot of headline risks out there so it makes sense that traders are a little bit cautious right now. Because of this, a lot of traders are a bit leery of shorting the US dollar.
However, as the Bank of England seems to be content with its current monetary policy and the Federal Reserve seems to be intent on quantitative easing, it makes sense that this currency pair would continue much higher. Because of this, I will be long of this pair, but have to see the correct supportive candle over the next week or so.