The Cable recovered nicely from Monday lows, feeding off of a combination of oversold conditions, positively mixed British econ data, and reassuring comments from the BoE. Britain's Current Account came in weak as we anticipated, fueled by consumption in light of a stronger Pound. Net Lending to Individuals made an encouraging improvement, showing banks are finally letting loose some of their pent up liquidity. The BoE helped the Pound's rally by stating they have no present intention to lower the discount rate while they hope to keep the Pound's broad-based depreciation within a reasonable level. King's retraction concerning lowering the discount rate charged on reserves is probably attributed to the improvement in net lending. Hence, the BoE has managed to value the Pound via psychological forces over the past month without taking any concrete action. However, despite this week's comments from the BoE, we believe the central still favors a weaker Pound in order to stimulate external demand for British services and manufactured goods.

Investors will get a better picture of the demand for British manufactured goods tomorrow upon the release of Manufacturing PMI data. We expect Manufacturing PMI data to come in weak, supporting the BoE's dovish monetary actions. The more interesting data tomorrow will be Britain's Halifax HPI data. We've recently seen signs of a cool down in Britain's housing recovery. British housing data has been the one consistent bright spot amid Britain's negatively mixed data over the past few months. Therefore, a pullback in housing could inflict further damage upon the Cable. Tomorrow's British data will be coupled with important econ data from the U.S. as well, making for another volatile 24-48 hours.

Meanwhile, the Cable is trading back above June and July lows as well as the psychological 1.60 level. However, Monday's crash below June lows was certainly a very negative technical sign. Therefore, we maintain our negative outlook trend-wise on the GBP/USD. As far as the bulls are concerned, it will be important for the Cable to consolidate and build a new base above our 1st tier uptrend line and the psychological 1.60 level. If the Cable can weather the downward momentum for the time being, the currency pair may be able to put together a near-term uptrend. Volume is picking up from the summer doldrums, yet we saw equally as strong sell-side action today as we saw on the buy-side yesterday, indicating the importance of present levels. The GBP/USD has quite a few barriers to overcome before piecing together a meaningful uptrend beginning with our multiple downtrend lines and intraday highs.

Present Price: 1.6024

Resistances: 1.6045, 1.6090, 1.6112, 1.6132, 1.6169

Supports: 1.6016, 1.5978, 1.5950, 1.5921, 1.5900

Psychological: 1.60

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