The Cabled has recovered nicely from Tuesday lows after bottoming along our 2nd tier uptrend line and just above 10/26 lows. Buyers come to the rescue following positive economic data flows from Britain coupled with another large topside breakout in gold. Yesterday's Halifax HPI number tagged onto the positive Manufacturing PMI performance on Monday by printing 4 basis points above analyst expectations. Today's Services PMI data completed the trifecta, printing at 56.9 vs. 55.4E. We mentioned previously how the Services PMI number should carry a little more weight since the services industry comprises roughly 70% of GDP. The Services data didn't disappoint, and the 56.9 reading falls in line with pre-crisis levels. The Pound has reacted positively, flexing its relative strength while sending the EUR/GBP lower.
The Cable also got a boost from yesterday's impressive breakout in gold. The precious metal is presently looking to test its highly psychological $1100/oz level. As we mentioned in today's EUR/USD commentary, gold's large topside movement could signal a coinciding decline in the Dollar due to their negative correlation. On the other hand, yesterday's action in gold may been largely due to India's sizable purchase of bullion from the IMF. Either way, gold's breakout sends some positive signals, helping the Cable's uptrend. However, despite today's strength in the Cable, the currency pair still faces our 3rd and 4th tier downtrend lines along with 10/29, 10/23, and 9/11 highs. Therefore, a few worthy topside technicals remain between present price and more significant topside movements. As for the downside, the Cable has multiple uptrend lines serving as technical cushions along with 11/03 and 10/23 lows. Furthermore, the psychological 1.65 level may now work in the Cable's favor.
The next 24-48 hours will be all about the central bank meetings. The Fed will announce its monetary policy this afternoon with the BoE and ECB following early Thursday PST. While the Fed is expected to keep its loose liquidity policy intact for the 'foreseeable future', the BoE and ECB meetings carry more uncertainty. Although analysts are expecting the BoE to increase its QE package by 50 billion, the BoE has expressed a more hawkish tone as of late. Prelim GDP aside, recent British econ data has been more positive than negative. Therefore, although the BoE is expected to inject more liquidity tomorrow, there remains a possibility that the central bank may just stand pat. Considering the slight uncertainty surrounding upcoming monetary policy decisions, we could be in for a volatile couple trading sessions in the FX markets. Therefore, investors should keep a sharp eye on the Cable's interaction with its technical levels as well as the behavior of its correlations.
Present Price: 1.6526
Resistances: 1.6544, 1.6566, 1.6604, 1.6630, 1.6662, 1.6688
Supports: 1.6505, 1.6473, 1.6428, 1.6397, 1.6362, 1.6329