By: Christopher Lewis
The cable pair has been on a massive run up over the last couple of sessions, and most traders I know have been waiting for the pullback to come so they can enter as well. Quite frankly, most people I knew (including me) seemed to think that the 1.60-ish level was going to be very difficult to overcome. Traders hate to “miss a move”, and this is what makes sure that the resistance will more than likely be tested as support – it is the traders that missed out who comes in and makes that support.
The United Kingdom is currently doing reasonably well, and the central bank there is now openly worrying about inflation. This means that higher rates are coming to England before they are in America, and this is one of the most fundamental and basic things that move a pair. The 1.60 level should now be support, but we didn’t bother to retest it. This happens sometimes.
Hammer or Hanging Man?
The candle for the session on Monday showed a bit of a pullback, but by the time the session came to a close, we had a hammer shaped candle form at the top of the run up. However, this candle can be either a good or a bad thing, depending on which way the market breaks.
The breaking of the top of this range to the upside would have this candle as a familiar hammer, and this would signal that the market is ready to continue climbing. However, if the lows of the candle are broken, the candle then becomes a “hanging man”, which is very bearish. In fact, this is one of the most bearish breaks that one can see in the Forex markets.
.png "GBP/USD Daily 42412")
The market has been very strong, and I personally think that we will break higher. However, I have been burnt in the past by not waiting, and this is a lesson that people need to take to heart: When trading the markets, let them tell you where they want to go – never anticipate. I am buying the breakout to the upside, and selling a breakdown for a move back to 1.60 or so.