The Cable is recovering from intraday losses after experiencing a key pullback since late Friday. The GBP/USD sank below our important 1st tier uptrend line and September lows, setting itself up for another leg down over the near-term. Ironically, the EUR/USD eclipsed its September highs today, signifying the contrasting paths of the Euro and Pound. In fact, the EUR/GBP has been climbing much closer to the key parity level. However, the Pound’s present strength is not surprising, and marks the over-extension of the Aussie and gold. We notice that the S&P futures are trading soft while investors snap up oversold 30 Year T-Bond futures. The behavior of these various investment vehicles supports today’s pop in the Pound. What doesn’t support today’s pop is the weaker than expected CPI growth. Today’s disappointing CPI release couples with Friday’s discouraging PPI number, as opposed to the previous release of the two pricing data points when CPI outperformed expectations. Therefore, corporate revenue should be under added strain, leaving the door open for the BoE to add funds to its QE program. At the very least, current pricing data supports the BoE’s dovish stance and encourages the central bank to maintain its loose monetary policy for the time being. This spells bad news the Pound and gives us little reason to alter our negative outlook on the Cable trend-wise.
Britain will keep the data train rolling tomorrow by releasing important CCC numbers. The CCC has been relatively flat over the last few months. Therefore, any dramatic shift to either side would most likely have a large impact on the Pound. While the medium-term trend of the CCC has been headed south, stagnation over the past quarter could represent a trough in the pattern. Therefore, we expect the CCC may register a larger than anticipated increase tomorrow. Such an occurrence would reinforce the significance of the Cable’s decline below our key 1st tier uptrend line. Despite the weight of tomorrow’s CCC release, the GBP/USD’s present fate likely relies upon the performance of upcoming U.S. earnings and econ data flows. Outperformance of each reinforces the Cable’s negative correlation with the EUR/USD, and encourages investors to favor the Dollar over the Pound due to the BoE’s clear dovish policy stance.
Technically speaking, our multiple downtrend lines and the highly psychological 1.60 area serve as topside barriers. As for the downside, there’s quite a bit of distance between present price and our next uptrend line. Furthermore, a dip beneath 06/2008 lows sets the stage for a more protracted pullback towards 05/2008 levels and the psychological 1.55/1.50 trading zones. We maintain our negative outlook on the Pound due to the aforementioned analysis unless either Q3 earnings disappoint and/or the BoE alters its monetary stance.
Present Price: 1.5808
Resistances: 1.5825, 1.5847, 1.5869, 1.5907, 1.5935, 1.5981
Supports: 1.5778. 1.5760, 1.5728, 1.5708, 1.5671, 1.5635
Psychological: 1.55, 1.50