The GBP/USD pair rose during the session on Monday again, cleanly breaking above the 1.5250 level, an area that I have been talking about as significant resistance. Because of this, it now looks like the British pound will be a favored currency and sooner or later we will test the next significant resistance area: the 1.55 level.
I think that we will eventually hit the 1.55 level, but whether or not we can get above there is probably a different question altogether. I also think that the 1.5250 level will now be significant support, and as a result we should be able to buy pullbacks going forward. If we manage to break down below the 1.52 handle, I think at that point in time the uptrend is in serious trouble. However, the way that this market is moving is not what I expect to see happen.
This market will more than likely struggle at the 1.55 level, but it isn't until we get up there that we can even begin to question it. Certainly between here and there is a certain amount of "empty air" that the market should just slice through like it's not even an issue.
Short-term bullishness, long-term uncertainty.
Expect the pair to be bullish over the next couple of weeks, but what we need to be concerned about is whether or not the Federal Reserve will taper off of the quantitative easing, possibly in September. Expect the value of the US dollar to drive this market more than anything else, and the US dollar will be driven by the possibility of tapering more than anything else as well. Because of this, this will be a headline driven market, but I think in the meantime we have resigned ourselves to hit the 1.55 handle.
Once the liquidity comes back into the marketplace, perhaps in a month or so, we should start to see "real moves" in this market. Remember, a lot of the major traders are simply not at their desks right now, so Forex markets may be getting fall signals.