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Forex Strategy: GBP/USD Reversal Underway Post Hammer Formation

Forex Strategy: GBP/USD Reversal Underway Post Hammer Formation

David de Ferranti, Currency Analyst

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Talking Points

  • GBP/USD Technical Strategy: Longs preferred following Hammer formation
  • Lack of meaningful bearish reversal signal leaves bias to the upside
  • Rally may encounter selling pressure at 61.8% Fib Retracement Level

Buyers have continued to push the GBP/USD higher as foreshadowed by the recent Hammer candlestick formation. This was followed by a couple of daily candles with long lower wicks that suggested sellers were unable to maintain their grip on the pair near key support around the 1.6260 mark.

Resistance is looming nearby at the psychologically significant 1.6500 handle (also the 61.8% Fib Retracement Level), and as such the reward on new long positions may be roughly 80 pips. However, with a possible stop at support (1.6260) the risk involved of roughly 100 pips throws off the risk-reward potential for the trade. Thus a break above 1.6500 or small retracement of the recent gains may be preferable for entries on buy trades.

Traders should also be mindful of key upcoming event risk for the pound with the Bank of England’s Inflation Report set to cross the wires mid-week (see the economic calendar here).

Confirm your chart-based trade setups with the Technical Analyzer.

Forex_Strategy_GBPUSD_Reversal_Underway_Post_Hammer_Formation_body_Picture_1.png, Forex Strategy: GBP/USD Reversal Underway Post Hammer Formation

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM

Contact and follow David on Twitter: @Davidde


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