The GBP/USD pair fell during most of the session on Friday, but ran into enough support in the 1.60 vicinity to see a bounce by the end of the trading day. This bounce produced a nice-looking hammer, and quite frankly at an area that I would've expected to see it happen. After all, the 1.60 level does have a certain amount of weight when it comes to its psychological importance, and many of traders would have been more than willing to buy at that level.
This is one of my most favorite currency pairs for the upcoming 2013 year, as I have seen a nice a large technical signal get fired off, and confirmed much later. What I'm speaking about is the ascending triangle that got broken out of during the summer. The resistance level for that ascending triangle was the 1.58 handle, and the entire pattern measured for a move to the 1.63 level. We did break out of that pattern, and did in fact reach the 1.63 level on the breakout.
Now that we have pullback and bounced off of the 1.58 level, I believe that this pair is ready to continue much higher. In fact, I think by the end of the year we could very easily see a 1.70 print in this market. With that in mind, I do look at this pair as being overly bullish, and think that it is only a matter time before we really start to pick up steam.
Hammer and the Federal Reserve
The daily candle for Friday did in fact form a beautiful looking hammer, and this of course is one of my favorite signals to buy a currency pair. It's placed right where you want to see it, and at a place that previously printed a couple of hammers. Obviously, somebody likes buying this pair at the 1.60 level.
Adding to the potential bullishness of this currency pair is the fact that the Federal Reserve will end its so-called "Operation Twist" program at the end of the month of December, and as such the potential for a QE4 is rising. Because of this, we could see an acceleration of Dollar weakness going forward, which of course please into my thesis.