The GBP/USD pair fell during the balance of the session on Tuesday, as we continue to focus on the 1.60 handle. Quite often, you will see markets focus on one particular level for a while before taking off. I think that's happening at this moment, as the 1.60 handle of course is a large round psychologically significant number. With that being the case, I feel that the fact that the buyers managed to push the market back towards the 1.60 handle, and more importantly form a nice looking hammer, that we will see markets try to go higher from here and a move above the top of the hammer would in fact be reason enough to start buying in my opinion.
Whether or not we're going to breakout massively is a completely different question of course, but a break above the top of that hammer is reason enough for me to believe that we will head towards the 1.6170 handle. That was the most recent high, so it makes sense that the market will continue to try that area over and over. Ultimately, I think that it will break out above but in the short term we could see a lot of consolidation between here and there, which would simply be indicative of a market is taking a bit of a breather.
Federal Reserve versus the Bank of England
At this moment in time we have a situation where the Federal Reserve has chosen to keep monetary policy extraordinarily loose, while the Bank of England seems to be stuck in a corner as he cannot continue to weaken its monetary policy at the moment. Because of this, I think that this market will continue to go higher, especially considering that the US dollar itself is getting pummeled against most currencies. Whether or not we break out to the upside rapidly might be a different question of course, but I do think that we will continue to grind higher over time. As for selling is concerned, even if we managed to break down a bit from here, we feel that this market will have support at the 1.5750 level below.
