GBP/USD rose during the session on Wednesday as the 1.58 level gave way. However, the 1.59 held and has pushed the pair back significantly. This recent thrust has been very positive, and a break of 1.58 is certainly a sign of strength by the Pound. The ability to climb 600 pips in the last three weeks has been impressive, albeit overdone to say the least.
The close above 1.58 is a good sign. However, it looks as if 1.59 will cause problems as well. Even if the trend has changed for good - any healthy rally needs a pullback, and this is something we simply haven't gotten yet. Because of this, we are somewhat leery about buying at these highs levels.
The selloff in the later hours is a bit of concern, and as a result - there are going to be cleaner signals. Since the pair so obviously wants to rise in value, perhaps the best solution is to look for a reasonable pullback in which to join in on the bullish side. The pair has risen far too fast for a prudent trader to be involved in at the point.
The sell side would be the right place to be if we could manage a break below the hammer from Monday. This would show a capitulation of sorts in the support, and could lead us to lower prices such as 1.55 before the move was over. However, the buy side is quite a bit murkier at this point, this is why we prefer the pullbacks - it gives us a chance to build up momentum.
The 1.57 level should be somewhat supportive, going all the way down to the bottom of the above mentioned hammer at roughly 1.5650 or so. The market certainly looks positive, but there simply isn't enough room to move at this point in justifying the risk of trading capital. If you didn't get in early, this rally was a tough one to join unfortunately. With this in mind, we see pullbacks as the only real route to being long.
GBP/USD Forecast February 2, 2012, Technical Analysis
GBP/USD Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3