By Fast Brokers – The Cable is testing its November lows as investor sentiment has turned sour following Friday’s optimism stemming from a combination of encouraging U.S. employment data and the BoE’s Darling stating that he believes the UK economy has turned a corner. We have since witnessed a risk-aversion trend since Friday’s events as investors react to Bernanke stating that the U.S. economy still faces considerable headwinds. It seems Bernanke is trying to curb speculation that the Fed will begin tightening liquidity sooner than anticipated due to Friday’s data. Bernanke’s cautious public address has sent U.S. equities lower and the Dollar and Yen higher. In addition to Bernanke’s impact on the market, investors are also reacting to Moody’s statement that the UK and U.S. are ‘testing the boundaries’ of the Aaa ratings. Moody’s statement has delivered a negative psychological blow to the risk trade as investors worry about the debt exposure of these two industrialized nations. Furthremore, investors are monitoring Dubai’s debt situation as it seems Dubai World will need to delay its Dec 14th debt payment. New uncertainties surrounding Dubai World’s ability to settle with its creditors has resulted in additional risk-aversion. Hence, the Cable has continued Friday’s sell-off as the Dollar experiences a broad-based rally.
Meanwhile, Britain released a Manufacturing Production figure which was 5 basis points below analyst expectations (0% vs. 0.5% expected). However, less weight is normally placed on the UK’s manufacturing data since the nation’s GDP is much more reliant on revenue from the services industry. In addition to today’s disappointing manufacturing number, Britain’s Retail Consortium’s data showed that the growth of retail sales has slowed, led by a decline in the purchase of food products. Invetors are presently awaiting Finance Minister Darling’s new budget plan to see how Darling plans to reduce the UK’s swelling deficit. Most of the focus will likely be on Thursday’s BoE monetary policy decision. The central bank has been a bit more hawkish concerning its monetary policy lately due to its more optimistic outlook on the UK’s economic performance. Therefore, it will be interesting to see how investors approach Thursday’s policy meeting.
Technically speaking, the Cable is currently testing important near-term technical cushions in the form of November and 10/26 lows. A failure of these lows could result in a test of our 2nd tier uptrend line. That being said, the Cable does have some historical data from August and September of this year. Hence, the Cable’s technical condition may not be as poor as it seems from our 4-hour chart. However, should conditions deteriorate, the Cable’s psychological 1.60 level could also prove to be a solid technical cushion should it be tested. As for the topside, the Cable faces multiple downtrend lines along with 12/07 and 12/04 highs. Therefore, quite a few topside technicals are in place.
Present Price: 1.6285
Resistances: 1.6325, 1.6346, 1.6371, 1.6396, 1.6435, 1.6470
Supports: 1.6284, 1.6260, 1.6248, 1.6200, 1.6163, 1.6133
Psychological: 1.65, 1.60, November Lows and Highs
Market Commentary provided by Fast Brokers.
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