By Fast Brokers – Most of the Cable’s positive technicals were shattered after Britain’s Prelim GDP number shocked investors by printing negative at -0.4% vs 0.2%E. Investors sent the GBP/USD tumbling on strong volume since all of the positive fundamentals from the past two weeks have now been brought into question. Furthermore, investors are now speculating that the BoE will inject more liquidity into its QE package to keep Britain’s economy afloat. This is a complete reversal from recent optimism surrounding King and the BoE’s less hawkish quotes as of late. After all, the last Services PMI number came in strong and the CCC continues to drop. Considering the services industry comprises nearly 70% of Britain’s economy, investors are hopeful the PMI number signifies future strength. Regardless, The BoE’s upcoming monetary policy became even cloudier, and the uncertainty is likely to riddle the Pound until we hear something from Governor King or another high ranking member.
In all, we wonder whether the BoE is playing games with investor mindsets to keep the GBP/USD around par as the global economy repairs itself. We can’t help but notice that despite all of the volatility over the past few months, the Cable is now trading at June 1st levels. Therefore, while China steadfastly keeps the RMB pegged to the Dollar, the BoE appears to be accomplishing this feat via strategic psychological games coupled with intermittent liquidity measures. It’s hard to believe that King and the BoE didn’t see this Prelim GDP number coming when it began shifting towards a more hawkish monetary stance over the past 10 days, sending the Cable flying higher by 1000 basis points. The BoE’s recent comments have allowed today’s negative shock to leave the Cable in a much more favorable technical position than if they had kept quiet. Therefore, investors should look behind future BoE quotes instead of just taking them at face value. In fact, future comments may even give us hints in regards to upcoming econ data releases…
Meanwhile, the Cable has collapsed below the psychological 1.65 level along with our 3rd and 4th tier uptrend lines. The Pounds relative weakness is highlighted by a solid pop in the EUR/GBP. Speaking of which, the EU’s PMI data came in positively mixed. Additionally, U.S. Q3 earnings continue to roll in better than expected and Existed Home Sales surged. Regardless of positive developments in the EU and U.S., today’s collapse in the Cable could carry lasting consequences trend-wise. It will be important for the GBP/USD to hold above our 2nd tier uptrend line and 10/19 lows. Fortunately for bulls, investors will be greeted by more important econ data early next week, beginning with Nationwide HPI and CBI Realized Sales from Britain. Positive econ reports might help the Cable find a bottom and stabilize. However, any further fundamental weakness will make a BoE liquidity injection all the more likely. As for the topside, the Cable suddenly faces multiple uptrend lines and the 1.65 will act as a topside psychological barrier. Our 2nd tier downtrend line serves an important role once again in terms a substantial turnaround in the Cable. Overall, we suggest investors sit on the sidelines before determining just how serious today’s pullback may be in regards to near and medium-term trends.
Present Price: 1.6337
Resistances: 1.6377, 1.6413, 1.6443, 1.6465, 1.6493, 1.6522
Supports: 1.6329. 1.6303, 1.6265, 1.6227, 1.6205, 1.6185, 1.6151
Psychological: 1.65, 1.60
Market Commentary provided by Fast Brokers.
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