The GBP/USD pair had a rough session on Tuesday initially as it fell below the 1.56 area and almost managed to reach the 1.5550 level. However, it had a significant bounce later in the day to form what essentially looks like a perfect hammer, and as a result it looks like there may be a bounce coming.
This chart, you can see that over the last couple of weeks the descent of this pair has slowed quite a bit, and as a result it looks like we could be forming some type of base. After all, we are in the middle of the significant and massive ascending triangle that launched this pair up to the 1.63 handle last summer. There should be a ton of orders in this general vicinity, and as a result it will take quite a bit of work to break it down. With that being the case, a bounce here and there certainly would be a question.
Of course, there's also the possibility that we are forming a bit of a bottom. If that's the case, then we should see a return to the previous consolidation area which has a top at the 1.63 handle. The hammer that has formed for the session on Tuesday suggests that the 1.5650 level is trying to form as some type of support level, and we obviously have the 1.58 level above that has served as resistance over the last two weeks. Because of this, it's very possible that we could see a bit of consolidation.
Short-term position?
If we managed to break the top of the hammer for the Tuesday session, I will more than likely be long in this market, aiming for a quick 100 pips. However, if we managed to break back above the 1.59 level, this would be an extensive reversal of momentum, and have me buying this pair in aiming for 1.63 again. As far as selling is concerned, I am a bit leery of doing so because the 1.55 level is just below the bottom of the hammer, which would be my normal sell signal. However, the 1.55 level will certainly have a significant psychological importance to the marketplace, so I think the downside is somewhat limited.
