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The GBP/USD pair fell during the session after initially surging on Tuesday, in order to test the 1.62 level yet again. This market has been very bullish, but we want to see a pullback in order to start buying again. We would of course by a break of the hammer from last Friday as it would show a significant break out, but the truth is that we would prefer to see 1.60 retested as support going forward.
A bounce from that level would indeed be very interesting as we think it would continue the bullish run well over the 1.63 handle. Obviously, if that level gives way we would have to look at whether or not the longer-term uptrend can stay intact. Nonetheless though, we do prefer buying the British pound over the US dollar as the Bank of England is sitting tight with its monetary policy. The Federal Reserve of course is easing yet again, and as a result we think over the long run this pair should continue much higher.
Remember, there was an ascending triangle over the summer that signaled that we could be going much higher in this market. Once we broke out above the 1.58 handle, there was very little doubt left in the minds of most traders as to whether or not this pair could continue higher. In fact, the measured move suggested that we could go as high as 1.63, which is of course exactly where we went. Nonetheless, we do feel that eventually we will break that level as there is absolutely nothing that says a measured move can’t be topped by the market.
Although the British pound is considered to be a "risk currency," the truth is that it is much safer than many of the other ones. Because of this, although it does enjoy some benefit from a "risk on" type of environment, it also doesn't silver is much will we go into safety mode. Over the long term, we feel that this should benefit the cable pair as well as the interest-rate outlook between the two central banks. Because of this, we are buying pullbacks, and of course the aforementioned break of the 1.63 level.