The GBP/USD pair fell during most of the session on Thursday in order to break through the bottom of the shooting star for the Wednesday session. The 100 day exponential moving average is sitting just below, and it looks as if the pair is struggling with direction at the moment. Looking at this chart, it is going to be difficult to garner some type of direction right away, but I believe that we will get a signal relatively soon.
It's obvious to me that if we break the bottom of the hammer that formed on Thursday, this would be very bearish and should send this pair much lower. This would make sense in the current environment, as it is a risk sensitive currency pair. Conversely, we could break the top of the shooting star for Wednesday and this would be a bullish sign and should see the market continue up to the 1.62 level. In a sense, you can treat both of these days as one candle.
1.60 is crucial
Looking at the chart from a longer-term perspective, 1.60 is a significant level. It makes sense that we are struggle of that at this point, and it doesn't help of course that we now have to make sense of the US fiscal cliff, the debt issues in Europe, and various other growth related issues around the world. With this in mind, it is not surprising that we are struggling with which direction to go.
However, I do believe that the Bank of England is holding things much steadier than the Federal Reserve. With that in mind, it almost suggests that we will rise over time. This will be especially true if the government in the United States can find some type of solution to the fiscal problems coming up.
With all this being said, I am much more comfortable buying this pair as it is with a longer-term move. However, if we do break lower, I would expect the 1.57 level to be massive support. If that level gets broken to the downside, we could fall much further.