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The GBP/USD pair fell for most of Thursday, but bounced in order to form a hammer and the 1.62 level. This pair has been broken out for some time, and as such we are very bullish of the cable.
The 1.60 level below is the ideal area to pullback to in order to start going long of this market again. However, based upon the last couple of sessions it doesn't look like we're going to get this move. Is because of this that we are more than willing to start buying this pair above 1.63 as it would show a continuation of the break higher.
The bank of England has stated recently that they are more than comfortable with their present monetary policy, while the Federal Reserve has announced further quantitative easing. This should continue to funnel money into the British pound, and away from the US dollar. We think that the fundamentals do line up with this currency pair going much higher for wants area
In a world that is low yield, a lot of investors will have to find yield wherever they can. This does pay a positive swapped, and while that doesn't seem like bullish of reason to buy a currency pair in and of itself, do not underestimate the fact that the swap affects the way people trade.
Looking forward, we saw the 1.63 level as the target based upon an ascending triangle that had formed over the summer. We broke out of that triangle in late August, and as such we have been very bullish ever sense. We think that this market could continue much higher, and quite frankly the 1.63 level seems a little short at this point in time. In fact, we think we can go much, much higher in this pair as the Federal Reserve will continue to pump out Dollars to be of the MBS markets. Looking forward, we do also think that buying on the dips should be the way to go in this market. We expect a massive support 1.60, but also with expect to see quite a bit of support at 1.58 as well.