By Fast Brokers – The Cable has dropped below our 2nd tier uptrend line and the psychological 1.60 level as the Dollar strengthens across the board. We recognize solid gains in the USD/JPY coupled with weakness in the gold, indicating investors continue to favor the Greenback in light of America’s economic recovery picking up steam. The UK released Final GDP data which printed one basis point higher than Prelim, yet one basis point below analyst expectations. However, the more important data figure was Britain’s Current Account Balance, which came in much stronger than anticipated. Hence, it seems global demand for UK goods and services is improving, a positive signal for the economy. While some may expect relative strength in the Pound in reaction to healthy Current Account data, we’re witnessing exactly the opposite since it seems America’s recovery story is in the forefront right now. Furthermore, it may be deduced that part of the reason behind today’s narrowing in the Current Account Balance likely comes from recent weak UK consumption data. Meanwhile, investors will likely have their attention focused on Wednesday’s BoE monetary policy meeting minutes. Due to recent improvements in unemployment and prices, the BoE may deem it appropriate to exert a more hawkish tone in its monetary policy statement. Hence, volatility in the Cable could pick up a bit before Christmas as investors react to the BoE’s decision. For the time being, investors should monitor the Dollar’s broad-based reaction to upcoming Final GDP and Existing Home Sales from the U.S. since the Cable will likely correlate well with the Dollar until tomorrow’s BoE meeting.
Technically speaking, the Cable’s large pullback this month has sent the currency pair below some key technical levels. Hence, it’s possible the Cable could be entering a more protracted downturn. The Cable has now dropped below our 2nd tier uptrend line with our 1st tier uptrend waiting far below (Off Chart). That being said, the fact we are now using March lows, or the 1.40 area, to create uptrend lines gives investors an idea of the extent of the damage inflicted by the Cable’s December pullback. Meanwhile, it will be interesting to see if the Cable can stabilize today and stick around the psychological 1.60 level. If not, the Cable does have some technical supports in the form of September and October lows. As for the topside, the Cable faces multiple downtrend lines along with 12/18 and 12/16 highs.
Present Price: 1.5990
Resistances: 1.6005, 1.6023, 1.6045, 1.6071, 1.6096, 1.6132
Supports: 1.5972, 1.5948, 1.5917, 1.5899, 1.5875, 1.5845
Psychological: 1.60, 1.65, September and October lows
Market Commentary provided by Fast Brokers.
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