The GBP/USD pair initially fell during the session on Tuesday, but found enough support at the 1.6050 level in order to bounce and form a hammer. This hammer of course is very supportive, and as a result I believe that this market is going to go higher. We did break below the bottom of the neutral candle from the Monday session, which in and of itself would've initially been a sell signal, but we did not close below it, so therefore I felt no need to start shorting.
Looking at the shape of this hammer though, I suspect that if we can break the top of the Monday candle should offer enough momentum to reach the 1.6250 level, the top of the larger consolidation area that we have been in since early September. Because of this, I think that we will initially charge towards that area, perhaps pullback slightly, and then build momentum to breakout finally. This will more than likely be a choppy affair, but in the end I believe that the British pound will continue to go higher against the US dollar.
Consolidation could be continuation.
The consolidation that we've seen over the last several weeks could just avoid be a way of the market from taking a breather after the parabolic move higher. On top of that, you have to look at the situation in the Federal Reserve as the main driver of this market. If they Federal Reserve can taper off of quantitative easing, that will be very positive for the US dollar. That would send this pair lower, and a break below the 1.5850 level after that type of announcement would of course change the attitude of the market overall. However, I suspect that this market is going to go higher because the Federal Reserve will sooner or later have to announce that they cannot taper off of quantitative easing quite yet, and as a result it's probably going to be late spring of 2014 before they can. That should continue to propel the British pound higher over the next couple of months.
