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The GBP/USD pair fell over the course of the Wednesday session, only to turn around and bounce to form the third daily hammer in a row. Triple hammers are a very rare occurrence in the Forex markets, and when we see this formation on a currency chart, we stand up and take notice. While the hammer for the Wednesday session turned red, it still shows strength as we are well-off the lows for the day.
However, we cannot buy at this point in time because of the 1.57 level just above. This area looks very resistive, and probably runs to about the 1.58 area. Because of this, we think that there is a significant amount of sell orders that need to be taken out above in this marketplace. We're looking for a break above the 1.58 level on the daily close in order to go long, and it down point we think several handles could be targeted.
Alternately, selling will be very difficult unless we take out all three candles from this week as it would show a serious shift in momentum. Even though hammers are very bullish sign, they can be very bearish ones when violated to the downside. In fact, this would be a "triple hanging man", something that is extremely rare in technical analysis and a very strong sell signal. If we were to give that somehow, we would target 1.55, and then 1.5250 as perspective targets.
Experience tells us that these triple hammers more than likely signal underlying pressure to rise over time. With this in mind, the breakout above the 1.58 level could be brutal and swift, and could really accelerate the buying pressure as the bears get cleared out. If this happens, not only will the 1.60 area be targeted, but we think this could lead to much higher gains. Of course, this would predicated more than likely on the idea of quantitative easing out of the Federal Reserve, something that isn't necessarily a given at this point in time. We will be watching this pair with great interest, as it could be our next long-term trade.