The GBP/USD pair continued to bounce on Wednesday from the recent lows just above the 1.58 handle. Adding more credence to the support level is the fact that the 200 day simple moving average is just below, and the Wednesday candle formed a hammer. Granted, the hammer is an at the very bottom of a downtrend like we prefer to see, but it does say the same thing: That the markets want to go higher. Buyers are stepping in, and starting to make some headway.
Also of interest is the fact that this is roughly 50% of the original move from the summer. Remember, we have broken the top of an ascending triangle that had massive resistance between 1.57 and 1.58, and now we have come back to retest that area. This is a classic "breakout, come back and retest for support, and then go higher" move. With this in mind, I am very bullish of this pair although I do recognize the fact the 1.60 could cause a little bit of resistance.
Pullbacks are your friend
I believe that pullbacks in this marketplace are going to be opportunities to buy the British pound. The move has been strong since the summer, and this pullback has been long and gradual, a sign that the market has been lulled into a false sense of complacency. In other words, the perfect combination for an explosive rally.
Going forward, I believe that the 1.63 level will be targeted again, but it will also be broken. I believe that eventually we will see 1.7 sometime next year and that we are forming the basis for that move now. I don't see a situation where I'd want to sell this currency pair at this current level, as I see far too much support below.
On pullbacks using shorter time frame charts, I am starting to buy this pair in small increments of the plan to buy-and-hold for some time. As long as we are above 157, I will continue to strategy as I think a longer-term we have a great risk to reward ratio here.