The GBP/USD pair bounced during the session on Monday, showing the 1.59 level as being supportive. Because of this, it appears that the overall consolidation is going to continue, and I started buying this pair early during the Monday session. This is the bottom of a consolidation area that extends all the way to the 1.6250 area, showing the market being fairly well defined in this consolidation area. I believe that eventually this pair does breakout to the upside, which would be signified by a daily close above the 1.63 handle.
After all, when you look at this market it has risen quite drastically, and now we started to grind sideways. Most of the time the markets will continue in the previous direction after consolidation area like this, so I typically look for continuation. On top of that, the British economy will continue to enjoy the benefits of being one of the biggest trading partners with Europe, which of course has just exited recession.
Federal Reserve
Continue to watch the Federal Reserve and what it can do, in order to figure out what to do in this pair. After all, the US employment situation is rather weak, and that of course should continue to hamper any ideas of the Federal Reserve tapering off of quantitative easing, and that in turn should mean that the value of the US dollar continues to depreciate over the longer term. The one caveat of course is the fact that the US dollar does get a bid when there are serious concerns about global growth, and with that being the case it will be an exercise as to what the market has been focusing on, and this will be apparent buying the way the market moves. After all, if this market continues higher, then it means that the participants are focusing on the fact that the Federal Reserve cannot taper off of quantitative easing. However, if we see this market fall drastically, it would be showing us that the market is concerned about global growth. In the meantime, I do think that ultimately the bulls will win out though, as the US dollar will get absolutely pummeled over the longer term.
