The GBP/USD pair fell for much of the session on Monday as traders initially sold off anything to do with risk, therefore pushing the value of the Dollar up in general. The cable pair has been remarkably strong, and this recent show of strength just puts an exclamation point on this fact.
The 1.58 level was once resistance, and it now looks like it is going to act as support as the daily candle is a hammer, and sitting just on this line. The long wick at the bottom of the candle makes for a good sign as well, and this should push prices higher if we can get a breakout above the Monday highs. However, the real question is whether or not the market can get through the 1.59 level. Because of this, the move is a real question.
With this in mind, a breakout could be a short-lived rally. The 1.59 and 1.60 levels should provide a lot of noise in the short-term, and could prevent any serious rallies form happening. The move has also been far overextended, and since the move has been so parabolic, it is simply difficult to get involved at this point. A pullback should be coming, and expected at this point.
The UK is still exposed to the EU far more than we are comfortable with, and the UK banks could get hit very hard by any problems coming out of the European Union. The British economy is doing a bit better than expected after the massive austerity measures, and as a result the Pound is still somewhat buoyant.
The next move will be defined at the 1.60 level before we can clear the area to the upside. The breaking of that level would send cable much, much higher than current prices. The braking lower would negate the candle from the Monday session, and have it become a hanging man, a very bearish signal at the top of a parabolic rally - enough to get us selling at that point in time as the pair needs a pullback soon, and the overall trend is still down.
GBP/USD Forecast February 7, 2012, Technical Analysis
GBP/USD Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3