The GBP/USD pair rose during the session on Monday, but pullback and the 1.6250 level in order to form a shooting star. This of course is a bearish signal, and could potentially signal a downfall to come. This isn't a big surprise to me however, even though I am very bullish of the pair. The reality is that this pair has ran quite a bit over the last couple weeks, and needs to pullback in order to attract new buyers.
The pair an ascending triangle formed over the summer that suggested to me we would be heading to the 1.63 level once we broke out. We've essentially done that, because you can form the top of the triangle somewhere between 1.57 and 1.58 or so. If the top of the triangle is roughly 1.5750 - we have hit the target.
Shooting star and pullback
The shooting star suggests that we will fall, and I think that one of the most natural areas to look for support as the 1.60 level. One of the biggest advantages to it is that it's roughly halfway from the recent highs. A lot of traders will want to capitalize on this obvious uptrend, and as such will be looking to reenter the market at roughly the 50% Fibonacci retracement level.
It also make sense of this pair continues to rise over the long term, as the Federal Reserve is easing as much is a can, and the bank of England seems to be fairly happy with its monetary policy and shows no real proclivity to cut rates or ease.
Over time, I think that the cable pair will continue much higher, and I think that the 1.70 level will eventually be hit. Obviously, things can change and headlines can move these pairs around, but right now it looks like the British pound is one of the most solid currencies out there. At this point time, I am not going to be buying this pair as I think we are overextended. However, supportive candles will be bought without hesitation, and especially if it's near the 1.60 handle.