The GBP/USD pair initially fell during the day on Tuesday, but as you can see found enough support at the 1.52 level to turn things back around and form a hammer. This is the second hammer in a row, and of course that is a very positive sign. With that being the case, it appears the market will more than likely continue to go higher, and on a break above the top of the hammer I would consider going long for a short-term position.
The reason of course that I would not hang onto the trade is that I think the 1.55 level above is going to be massively resistive. When you look at it, it was massively supportive in the past, and as a result I will look for resistance at that area to start selling if we get out there. On the other hand, we break down below the bottom of the hammers, that is a very negative sign but ultimately there is far too much in the way of noise below for me to feel comfortable shorting this market.
Range bound
I believe that this market will be range bound going forward, but it does have a little bit of an upward bias. Ultimately, I think the 1.50 level below is the “floor”, and the 1.55 level above is the “ceiling”, as the market continues to try to figure out what to do. After all, the British pound is relatively strong compared to most currencies, and of course the US dollar is its own animal at this point. Ultimately, I think that this market does grind its way higher, but will have to build up serious momentum to break out above the 1.55 level, especially considering that I see a significant amount of resistance all the way to the 1.58 handle. Above there, I think we are finally completely broken out, but it’s going to take a lot of momentum. In the meantime, I think you can play the range as I see it now. The 1.52 level will be the bottom of the shorter-term consolidation area, with the 1.50 level being the bottom of the longer-term consolidation area.
