By: Christopher Lewis
The United Kingdom has recently entered into recession. What has been particularly interesting is the fact that the Pound continues to gain in value relative to most other currencies around the world. The move seems counterintuitive, but at the end of the day the only thing that matters is price. Having said that, selling this pair has been a great way to send your account up in flames lately.
The cable pair has been a straight shot up over the last couple of weeks, and as a result it has been a tough bullish move to join at times. It simply looks overbought to a lot of traders, but won’t pullback very much in order to give those who are a bit more cautious a chance to be long of this market.
Hammer
The action on Tuesday saw a bit of a pullback, and then a bounce by the end of the session. The resulting candlestick for the day is a hammer, and it has formed at the 1.62 level. Because of this, it appears that the level could be the next support level for this very bullish market.
While it is easy to be dissuaded from jumping in at these high levels, the truth is that sometimes the market will no slow down enough to let you get the idea entry. Naturally, I would have loved to see a pullback to the 1.6050 area which was the site of the initial breakout, but the fact is that we may simply not get that move. (This was a lesson that I learned waiting for gold to pullback to $1,000 – it never did!)
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With the hammer for the session on Tuesday, this suggests that we may see a lot of traders trying to join the rally, and also suggests that there is quite a bit more bullishness to come. A break above the top of the candle would have me buying as the 1.62 level would appear to be the new “floor” in the pair. As for selling, I am not comfortable doing it now as the run has obviously had major momentum behind it.