By Fast Brokers – The Cable has propelled from our 3rd tier uptrend line to make a solid run past the psychological 1.60 level. While the performance of the GBP/USD over the last 24 hours has been encouraging, the upward movement came with relatively weak volume as compared to last week’s pullback. Regardless, bulls are coming to the defense of the Cable, and the currency pair could make a pop toward our 2nd tier downtrend line. As with the EUR/USD, the significant volume to the downside was disconcerting and makes us contemplate whether we have entered a new, near-term downtrend. U.S. equities and crude futures are on an impressive run, and there is belief that these investment vehicles may have overextended themselves.
Since economic data will be relatively quiet around the globe this week, the Cable may ultimately choose to abide by its positive correlation with the S&P futures. However, Britain will release Manufacturing Production and its Trade Balance tomorrow, which may prove to be market movers. If the economic data comes in weaker than anticipated and U.S. equities experience profit taking, we would not be surprised to see the Cable exhibit further downward pressure. That being said, we maintain our near-term negative outlook on the GBP/USD unless we see a strong move to the upside accompanied by convincing volume. On the other hand, the climb back above 1.60 is certainly encouraging, and we wouldn’t be surprised to witness more upward momentum today.
Meanwhile, the Pound continues to show relative strength, exemplified by the negative performance of the EUR/GBP. This is likely due to the fact that EU and U.S. economic data has been coming in mixed over the past six weeks, while numbers from Britain have been overwhelmingly positive. Therefore, we believe pure economic fundamentals are giving the Pound its edge. Furthermore, as a result of the improvement in economic data, we believe the medium-term still has a lot of strength despite any near-term downward pressure.
Fundamentally, we find resistances of 1.6233, 1.6315, 1.6371, 1.6412, and 1.6458. 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 cushion with 1.65 serving as a psychological barrier. The GBP/USD is currently exchanging at 1.6222.
Market Commentary provided by Fast Brokers.
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