The Cable is moving lower with the EUR/USD as we continue to witness risk-averse money flows. The recent wave of negative psychology events continues after Standard & Poor's announced it is lowering Spain's credit rating outlook to negative. The negative outlook in Spain adds onto debt worries in Dubai and a downgrade of Greece's national debt. Fears of government debt over-exposure has increased investor uncertainty once again, placing downward pressure on the Cable as investors snap up the Dollar for safety. In the UK, Chancellor announced there will be a one-time, 50% tax on bank employee bonus and the national tax rate will be raised in 2011 in an effort to reduce the nation's swelling debt. The concept of higher taxes takes a bite out of expected consumption, a negative catalyst for the UK economy.
In addition to today's negative psychological developments, Britain released a trade balance which was 200 million Pounds below analyst expectations. Hence, imports are outweighing exports, resulting in larger Pound outflows and consequently a weaker currency. However, investor focus likely remains on tomorrow's BoE monetary policy meeting in conjunction with America's Trade Balance in the afternoon. Although the BoE is expected to keep its benchmark rate and QE package unchanged, the central bank has been prone to induce monetary shocks in the past. Therefore, investors will be paying close attention to whether the BoE's monetary policy stance has altered from the central bank's previous meeting.
Technically speaking, the Cable has dipped below key November lows and is presently approaching our 2nd tier uptrend line. Hence, a downward pressure remains on the Cable. That being said, the currency pair does have our 1st and 2nd tier uptrend lines serving as technical cushions along with the psychological 1.60 area should it be tested. As for the topside, the Cable faces multiple downtrend lines due to recent weakness. Additionally, the Cable has 12/07 and 12/04 highs serving as technical barriers along with the psychological 1.65 level.
Present Price: 1.6222
Resistances: 1.6246, 1.6260, 1.6284, 1.6325, 1.6346, 1.6371
Supports: 1.6200, 1.6163, 1.6133, 1.6113, 1.6098, 1.6049
Psychological: 1.60, 1.65