The GBP/USD pair attempted to break above the 1.63 level for the second time in the last two days on Thursday. However, it failed and it shows just how resistive this area is going to be. For me personally, I believe that a break above this level signals a new leg up in this pair, so I have been very interested in this market over the last 40 hours, although I have yet to place a position.
The shooting star that was formed on Wednesday signaled that we were going to run into trouble. Thursday candle isn't quite a shooting star, but it's similar in shape and definition. Because of this I believe that we could see a potential pullback coming our way, but I think that the 1.61 level below should be rather supportive.
A tale of two central banks
The easiest way to think about this currency pair is to look at it through the prism of the two central banks involved. The Bank of England presently seems perfectly content with its monetary policy, and does not look to expand it. Because of this, it looks like we will have a fairly stable and although not quite hawkish stance, certainly not a dovish one.
Contrast this with the Federal Reserve. The American central bank announced just last week that it was looking to expand its monetary policy. It will purchase more assets, essentially "printing" US dollars. In a situation like this, you will see higher demand for the British pound as the devaluing of the Dollar continues.
This will also show itself in the debt markets. US debt yields are at historic lows, partially because of all of the buying that the Federal Reserve is done. With that being said, it makes British bonds so much more attractive than American ones. This will drive money into the UK and out of the USA going forward.
In a world where yield is something that's not easy to come by anymore, bonds matter. As a currency trader, you should keep one eye on the bond markets, and another on the Forex charts. Going forward, I believe that eventually we will see this pair breakout and above 1.63, and as a result I'm willing to buy that breakout or supportive action closer to 1.61.
