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The GBP/USD rose during the session on Tuesday, but gave back all of those gains in order to form a shooting star. This is the second shooting star in a row, and this of course suggests to us that there will be a selloff in the near-term. This selloff would actually be welcomed by us as it would be an opportunity to buy this pair at lower prices.
The Federal Reserve continues to expand its quantitative easing policies, and as such the US dollar should be punished over the long term. The British central bank on the other hand is fairly comfortable with this position from a monetary policy stance and as such should see the British pound be one of the favored currencies out there.
Of course, there will come times when the safety trade will force money back into the US dollar, but the truth is that overall traders will prefer to own the higher yielding British pound all things being equal. Because of this, we expect this longer-term bull trend to continue, and as such we are actually looking at all pullbacks at this point in time as opportunities to buy this market.
With the nonfarm payroll number coming out this week, the markets could be fairly quiet until 8:30 AM Eastern standard time on Friday. This pair should enjoy bullishness in the end regardless of what the announcement brings. If the jobs number is fairly robust, this would signal that the US economy is getting better and as a result the "risk on" trade would come into play after the initial knee-jerk reaction. Alternately, you could see a poor jobs number, and this of course means that the Federal Reserve will continue to ease its monetary policy and drive the value of the US dollar lower. Either way, the British pound should when in the end.
We are buying dips, and believe that the 1.60 level should offer significant support. We also think the 1.58 level will offer significant support as well, as it was the site of the massive breakout that got this rally going earlier this summer.