By Fast Brokers – The GBP/USD is finding strength in our 2nd tier uptrend line, avoiding a retest of the psychological 1.65 level following recent weakness. Though we saw a slight uptick in volume to the downside on Friday, we don’t believe this pullback carries much weight. We’ve seen technical breakouts to the topside in the EUR/USD and gold coupled with key declines in the USD/JPY. Hence, it’s clear investors continue to look unfavorably upon the Dollar, which bodes well for the Pound even if investors are turned off by the BoE’s taste for liquidity. The Pound will be tested further this week since we will receive key British economic data throughout the week. Tomorrow Britain will release its CPI and RPI data along with the Inflation Report Hearings. We will be paying particularly close attention to tomorrow’s pricing data since Friday’s Input PPI registered a surprising 2.2% growth rate. The Pound could experience a round of relative strength if the return to growth in Britain’s pricing data accelerates. Surprisingly positive pricing data tomorrow could lead investors to speculate that the BoE will keep any planned injections of liquidity on hold. However, unflattering pricing data could have the opposite effect and keep the Pound lodged within its relative weakness. Speaking of which, investors should keep a close eye on the EUR/GBP. The currency pair has received a wave of buying, and is currently staring down August/September highs. If the EUR/GBP surpasses these previous highs and breaks out to the topside, this would be a clear indication that Britain’s data will fail to impress this week.
Technically speaking, momentum in the GBP/USD remains to the topside due to last week’s large breakouts in the Cable’s positive correlations. Meanwhile, our 1st tier uptrend line is reaching an inflection point with our 1st tier downtrend line. Hence, we anticipate a possible pickup in volatility this week as economic data floods the FX market. Though lying in the distance, our new 2nd tier downtrend line should serve as a key barometer regarding the health of the GBP/USD’s medium-term uptrend. Since our 2nd tier downtrend line runs through August highs, an eclipse of the 2nd tier should indicate a large breakout to the topside. As for the downside, the GBP/USD has our 1st and 2nd tier uptrend lines along with the psychological 1.65 level to fall back on. Furthermore, the meat of the 8/10-8/24 trading range should prove to be both a reliable defense and obstacle due to its significance this summer. Hence, investors should keep a close eye on the lid and the bottom of this trading band.
Present Price: 1.6570
Resistances: 1.6570, 1.6589, 1.6608, 1.6635, 1.6661
Supports: 1.6552, 1.6519, 1.6491, 1.6475, 1.6455, 1.6431
Psychological: 1.65
Market Commentary provided by Fast Brokers.
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