By Fast Brokers -The Cable is finally forming a temporary bottom after its swift selloff. Friday’s downturn gained traction as Gordon Brown faced the resignation of another top official who asked for Brown’s resignation. The incredible shake up taking place in the Labor Party is unsettling since investors dislike such uncertainty. The Cable managed to drop beneath the psychological 1.60 level in the process, though it is trying to fight back above right now. On an encouraging note, volume continues to tail off with the GBP/USD’s decline, meaning a near-term bottom is certainly feasible. However, Thursday’s large volume to the downside could prove to be significant, indicating we are witnessing the beginning a new near-term downtrend in both the Cable and the EUR/USD. In the meantime, if our 1.5777 support doesn’t hold, we could witness another pullback towards the psychological 1.55 level. On the flipside, a near-term pop back above 1.60 and our 3rd tier uptrend line would be a comforting fundamental movement for the bulls.
Regardless of the near-term downward pressure coupled with political instability, we can’t forget economic data from Britain has been very encouraging over the past six weeks. Britain has outperformed both the U.S. and the EU as far as an economic recovery is concerned, which has given the Pound relative strength. Therefore, the medium-term uptrend in the Cable is alive and well unless the currency pair should make some drastic downward movements. Much progress has been made in the GBP/USD since January, and it will take several more convincing pullbacks to destroy the medium-term uptrend. Meanwhile, the present pullback in both the Cable and the EUR/USD is indicating a retracement in the S&P futures due to their positive correlation. Therefore, investors should keep an eye on U.S. equities this week to see if key supports in the S&P can hold.
Though economic data will be relatively light from Britain this week, we will see Manufacturing Production on Wednesday along with the U.S. Trade Balance. We maintain our negative near-term outlook on the GBP/USD trend wise due to the meaningful volume accompanying the pullback.
Fundamentally, we find resistances of 1.5940, 1.6023, 1.6089, 1.6171, and 1.6233. To the downside, we see supports of 1.5863, 1.5777, 1.5703, 1.5629, and 1.5552. The 1.60 level acts as a psychological resistance with 1.55 serving as a psychological cushion. The GBP/USD is currently exchanging at 1.5907.
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