The GBP/USD pair fell for the balance of the Wednesday session, and at one point in time was well below the 1.55 support level. However, by the end of the day you can see that we gained all of the losses just about, and in the end formed a nice looking hammer at a support area. With that being the case, I believe that this market continues higher from this point. However, we need to break the top of the hammer in order to get our buy signal, which of course is more or less a short-term signal. After all, the 1.5750 level is a significant resistance area, and as a result I think that the market will struggle to get above that area.
However, if we did manage to break above that area, I think that the 1.60 level would without a doubt be the next target. That being the case, the market will have broken out at that point, and could very easily continue going much higher.
On the other hand…..
On the other hand, it is quite possible that we break the bottom of this hammer, which of course would be a very bearish sign. If that's the case, I believe that we go down to the 1.55 level in relatively short order, and if that's the case I think the US dollar will do quite well against most currencies at that point.
Going forward, I would say that the upside is probably the safer of the two bets. Waiting for a break above the top or bottom in order to place that order is going to be vital, especially considering the time of the year that we have at the moment. Liquidity is just not there, and as a result only amateurs prefer trading, and they move the market in strange ways. After all, I would rather react to the market and follow where the winters are going, then trying to guess what's about to happen next. It probably won't be until the middle of September before we get true market moving events, so as a result make sure to keep your stop losses handy.
