By Fast Brokers – The Cable sold off sharply from intraday highs and our 4th tier downtrend line after EU GDP data disappointed and China surprised markets by raising its required reserve ratio by another 50 basis points. Uncertainty and underperformance in the EU continues to rattle FX markets, resulting in another wave of Dollar strength. Additionally, China may be sending a message that it plans on pursuing a more conservative monetary policy during the year of the tiger by tightening liquidity a day before the Chinese New Year. Tighter monetary policy in China could have a considerable impact on global growth considering China has been an engine driving the economic recovery from the nadir of the Great Recession. Therefore, hawkish monetary policy actions can have a profound impact on the FX markets, as implied by a large leg up in the Dollar following China’s announcement. Meanwhile, investors are awaiting retail sales and consumer confidence data from the U.S. The UK has been quiet on the data front since the release of the BoE’s inflation report. Therefore, broad-based movements in the Dollar could continue to drive the Cable for the time being. Speaking of the BoE’s inflation report, it is encouraging that the Cable has been able to hold above its previous February lows considering the volatility in the Euro. After all, the BoE did downgrade its outlook for 2010 UK GDP and inflation growth. However, should today’s U.S. data prove to be positive for the Dollar the Cable may opt to retest its February lows. Meanwhile, the Cable is building up a solid base above its psychological 1.55 level.
Technically speaking, the Cable has multiple downtrend lines serving as technical barriers along with intraday and 2/10 highs. As for the downside, the Cable has multiple uptrend liens serving as technical cushions along with 2/2 lows and the psychological 1.55 level should it be tested.
Present Price: 1.5620
Resistances: 1.5621, 1.5640, 1.5659, 1.5684, 1.5717, 1.5744
Supports: 1.5593, 1.5572, 1.5558, 1.5533, 1.5502
Psychological: 1.55
(click chart to enlarge)
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