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The GBP/USD pair fell for most of the sessions during this previous week. However, we saw a bounce from the 1.60 level and formed a hammer. While we are certainly at the top of the range from the last year and a half, we are starting to show signs of bullish pressure continuing in this market.
This hammer could signify the fact that more buyers are coming in order to push his pair higher, and break above the 1.63 level. If the 1.63 level does give way, we should see much, much higher prices. In fact, we expect to see 1.70 if we can get above 1.63 as there is only minor resistance all the way to that point.
As for the downside, a break of the bottom of this previous week's hammer would of course be bearish. However, the 1.58 level is the top of resistance from the previous ascending triangle that sent us so high in the first place. This of course should be massively supportive, and we would not hesitate to buy some type of supportive candle in the region. It really isn't until we get below this area that we begin to start worrying about the bullish trend in the British pound.
Speaking of the supportive region, we call a region because it actually extends down to the 1.57 level. As you can see on the chart, we have two very closely placed lines at 1.58 and 1.57 that are color purple. They represent a zone, not a line. This is quite common when we are talking about large important areas on a weekly chart. In the big scheme of things, 100 pips isn't much and you must keep this in mind when looking at the weekly charts.
As the Bank of England looks to keep its monetary policy where it is at, and the Federal Reserve looks to expand monetary easing, this should continue to push money into the United Kingdom and out of United States. Granted, there will be the occasional flight to safety in the form of the US dollar, but in the long run we believe that the British pound will continue to gain.