The EUR/USD pair gapped higher at the open on Tuesday, slicing through the 1.20 level as traders have returned from the holidays. It looks as if the market is ready to go higher, perhaps reaching towards the 1.21 level above. That is a level that is significantly resistive, so if we can break above there I think that the pair is ready to go much higher. This is not to say that we won’t be volatile, but I think that short-term pullbacks will be buying opportunities. The 1.20 level will be the first level of support, with the 1.19 level underneath being even more supportive. Given enough time, I believe that this pair goes much higher as we have recently broken out of a bullish weekly flag.
The British pound rallied significantly during the trading session on Tuesday, gapping higher at the open, and then continuing to go towards the 1.36 handle. I think there is plenty of resistance above at the 1.3650 level, which is the scene of the major gap lower. If we can clear that area, this market is ready to go much higher over the longer term. I think that eventually happens, but we will probably have a few pullbacks eventually. Those pullbacks should offer value the people are willing to take advantage of, as the US dollar continues to struggle in general. The British pound has been oversold for some time, and I think we are starting to see traders realize this as we have been building up a significant amount of momentum to the upside for quite some time. I like the British pound, but I would approach it slowly and add as it works out in your favor.