GBP/USD fell during the session on Monday, but managed to bounce towards the end of the trading day in order to form a hammer. This is of no small significance considering the fact that the 1.57 level held as support. Remember, it wasn't that long ago that this was the beginning of massive resistance in this pair. It is because of this that it looks to me like we are trying to break out again.
The fact that we formed of this hammer where we did it makes me believe that there is a tremendous amount of pressure on this pair right now to continue higher. I do however see the top of a resistance area as the 1.58 handle, and as such I wouldn't buy it until we clear down on a daily close.
Hammer time
The hammer represents a potential buying signal, but it also represents a potential sell signal as well. What I mean by this is that a break of the bottom of the long wick on this hammer would signify that the support has given way. If that happens, we should race back down to the 1.55 level before it's all said and done.
Looking forward, it would not surprise me to see this pair breakout. This is especially true the Federal Reserve starts the ease monetary policy, and as such we think that a "commodity rally" could fuel some of these riskier currencies to rise higher.
While I'm not a huge fan of the British pound, it should be said that in this particular type of environment it is possible that we will see the US dollar selloff. Nonetheless, this pair will have to prove itself to me by clearing the 1.58 level on the daily close in order for me to go long. At this point in time, I think that it is a 50-50 shot as to which direction we go overall, but the fact that this hammer formed on this form of resistance line does speak volumes to me. With this being said, I believe that the Tuesday session will be very important, and we should keep her eyes on this pair.