The GBP/USD pair initially fell during the session on Monday, but as you can see on Friday we had already formed a hammer. This hammer suggested that there was support at the 1.60 level, and as a result I started buying as we get close to that level. Having said that, we have broken back above the 1.61 handle, and it does in fact look like this pair is going to continue higher.
The candle shape for the session is a hammer like, and because of that it suggests that not only do we have a little bit of bullish action, but the support has not only been suggesting, but now it's been confirmed. With that in mind, I see no reason why we shouldn't return to the upside of the previous consolidation which could see this pair as high as 1.63 over the next couple of sessions.
Potential Breakout?
If we can get above the shooting star printed last Wednesday, this market really could start to take off to the upside. I still believe that this market is going to go as high as 1.70 over the course of 2013, so this is my base thesis. Whether or not it happens in the near-term is a completely different story, but I do believe that we will eventually get higher than that price.
As long as we are above the 1.58 handle, I believe that this is still bullish market even though a breakdown below the 1.60 handle would have me somewhat concerned. I feel that the ultimate "floor" in this currency pair is at 1.58 based upon it being the previous top of the ascending triangle that we formed over the summer. This should now be massive support, and I would fully expect the market to start jumping in hand over fist at that point in time to start buying the British pound.
I feel the same way about the 1.64 handle, which of course is a breakout above last Wednesday shooting star. If we can get above that area would show a significant amount resistance being conquered, and of course we could see a much higher move from that point.