The GBP/USD pair fell during the Friday session as traders took profits in some of the risk year currency pairs. This pair has been rather bullish lately, and as such I feel that it has much further to go to the upside. This makes sense of course because the two central banks are at opposite ends of the spectrum when it comes to monetary policy. The English are happy with the status quo, while the Americans are looking to continue to ease their monetary policy.
While the candle for Friday looks bearish, and while I do expect a pullback at this time, I am not willing to sell this pair. I see potential support of the 1.60 level based upon the large round number, as well as the hammer that was formed in early September. Because of this, I would look for a pullback to this area and would be willing to buy any type of supportive candle here.
I also see quite a bit of support at the 1.58 level. This area was the top of the ascending triangle that sent us so high in the first place. Once this broke, this previous resistance should now be support in this market. If we do get down that low, I believe that a very nice move could be coming. You have to think of it this way: There are a lot of traders that would love to be long of this pair, and they would be very quick to jump on the opportunity to get in at a cheaper price.
Start of a new trend
The fact that the Federal Reserve is essentially willing to be ease for an unlimited amount of time, this should continue to weigh upon the US dollar going forward. Most central banks around the world are practicing some type of easing, but the Bank of England isn't. That's what makes this pair so appealing to the long side. Not only do you get positive swap at the end of the day, there should be a search of money into the United Kingdom and out of the United States as traders chase higher yield.