By Fast Brokers
The Cable’s intraday rally is fading with U.S. corporate earnings disappointing investors. The positive correlation with U.S. equities is back in action so the S&P futures should be watched closely. The Cable is experiencing a little strength since Britain’s CPI came in line with analyst expectations. However, although the CPI number met expectations, it was not positive by any accounts. Britain’s CPI has dipped below 3% for the first time since May 2008 and the trend is clearly downward sloping. Dropping consumer prices raises the fear of inflation, which has been picking up in the U.S. and EU as well. Declining prices erode the profit margins, and ultimately result in higher unemployment if the prices fall to a level that significantly impacts sustainability of a particular company. Today’s earnings report from Tesco, Europe’s second largest retailer, reflects the toll declining consumption and lower prices are having on companies. Tesco released its weakest earnings in 15 years, and confirmed the use of lower prices in an effort to attract cash-strapped consumers. Today’s events take the wind out of the Cable’s sails, contradicting the recovery in economic data we saw earlier this month. However, as with the EUR/USD, the GBP/USD has several foreseeable uptrend supports to the downside, making the path lower layered with obstacles. Although the Cable dipped below our 2nd tier uptrend line, the currency pair is battling back above as we speak. The more significant fundamental development made yesterday was a decline below the psychological 1.45 level. Even though the GBP/USD recovered quickly, the level has been breached, setting the plate for another near-term selloff. Our 1st tier downtrend line and 2nd tier uptrend line will reach an inflection point soon, meaning we could see high volatility throughout the rest of the week. Investors will be eager to see Britain’s Claimant Count Change release tomorrow. Fundamentally, we maintain resistances of 1.4579, 1.4612, 1.4677, 1.4730, and 1.4770. The 1.50 level remains a key psychological barrier while 1.45 serves as a psychological cushion. To the downside, we hold supports of 1.4532, 1.4478, 1.4438, 1.4391, and 1.4362. The GBP/USD is currently exchanging at 1.4555.
Market Commentary provided by Fast Brokers.
Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.
Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.
