The GBP/USD pair fell during most of the session on Tuesday, but as you can see the 1.55 handle offered enough support to cause the market to bounce from that general vicinity. On top of that, you can see that the market formed a hammer, which of course is a very positive sign as well.
This is an area that has been supportive in the past, so it makes sense that it was again during the session on Tuesday. However, I think that this pair is a bit stuck at the moment and is setting up for a nice buying opportunity, but on the short term not the long-term. That's because the 1.5750 area has been so resistive in the past, that I think it will take a little bit of pressure to get through there. This time years probably going to be a bit then for the markets to really take off to the upside, but again one never knows.
The trend has certainly favored the upside recently, so I am very comfortable buying, at least for the short term, on a break above the highs from the session on Tuesday. This hammer is a decent buy signal in my opinion, mainly because of where it is placed. Going forward, I fully expect to see the 1.5750 level caused enough of an issue to keep the bullish traders back. However, if we managed to get a daily close above that level, I would be more than willing to start buying again.
It's the Federal Reserve, again
Unfortunately, I still believe that it's the Federal Reserve that's driving the currency markets, as the large money traders are away on holiday, and simply waiting to find out what the Federal Reserve will do about quantitative easing. As this pair has the USD in it, it is hard to think that the Federal Reserve won't have a massive effect on it. Because of this, I am on the sidelines or the longer-term move, but I do believe that 100 pips or so is available on a move higher for the short term.
