The Cable is consolidating along our important 2nd tier uptrend line as the currency pair battles with the psychological 1.60 level. Meanwhile, the GBP/USD has managed to set higher lows, (10/6, 10/2, 9/28), a positive technical development for the uptrend. However, the Cable is still trading at a comparative disadvantage after today's Manufacturing Production data came in far below analyst expectations. Furthermore, the Pound continues to be psychologically depressed by BoE Governor King's dovish monetary stance. On the other hand, Britain's Services PMI data came in above analyst expectations on Thursday. Since Britain's GDP is highly reliant on services this encouraging PMI release is helping buoy the GBP/USD. All eyes are now on the BoE and ECB meetings on Thursday. It will be very interesting to see how the BoE stands right now in regards to present weakness in the Pound considering the RBA just raised its benchmark rate by 25 basis points. Despite the RBA's action the BoE remains one of the loosest central banks around, and we don't expect this status to change. However, the BoE could behave in a more neutral fashion considering how far the Pound has fallen. Investors will be paying particularly close attention to King's quotes throughout the week since they have had a large psychological impact on the Pound in the past.
Regardless of today's breakout in the AUD/USD and gold the GBP/USD remains in a comparatively negative position. Currency pair correlations have been deviating lately, and this pattern may persist since central banks are embarking on their own respective exit strategies, or lack thereof. That being said, the GBP/USD's downtrend is still in control so long as the BoE remains dovish and British econ data comes in negatively mixed. There is little reason to believe Governor King has swayed from his belief that the Pound should be weaker to help support global demand for Britain's service and manufacturing industries. However, the breakout in gold to all-time highs is certainly interesting, and will remain on our radar since the Dollar has had a negative correlation with gold throughout the economic downturn. In addition to the central bank meetings on Thursday 3rd quarter earnings season will kick off tomorrow with Alcoa. Better than expected 3rd quarter results combined with a positive reaction from U.S. equities could help the GBP/USD shrug off its downtrend and creep higher. On the other hand, disappointing 3rd quarter earnings would put considerable downward pressure on the Cable. Overall, the breakout in gold and broad-based weakness of the Dollar helps the Cable's near-term performance despite the currency pair's negative technicals.
Technically speaking, the GBP/USD faces multiple downtrend lines along with the psychological 1.60 level and 9/30 highs. A breakout past 1.60 and our 4th tier downtrend line could result in accelerated immediate-term gains. As for the downside, the GBP/USD has cushions in 10/2 and 9/28 lows along with our 1st tier uptrend line. Neglect of our 2nd tier uptrend line and a subsequent failure of these lows and our 1st tier uptrend line would heighten near-term losses.
Present Price: 1.5930
Resistances: 1.5964, 1.5992, 1.6024, 1.6045, 1.6072, 1.6095
Supports: 1.5921, 1.5900, 1.5875, 1.5840, 1.5823, 1.5802