Volatility has picked up more than investors may have expected with a holiday shortened week in the U.S. The Cable has dropped to the 1.63 area after sinking below our previous 2nd tier uptrend line. However, the Cable is presently finding some support at previous November lows as U.S. markets come back online and investors digest the concerning news emanating from Dubai. As most investors know by now, Dubai World is requesting a debt restructuring of what could be up to $80 billion of credit. Although actual losses incurred are presently unknown, some European and UK banks could have considerable exposure. This week's news concerning Dubai's debt has shocked FX and equity markets as investors worry that the development may indicate forthcoming problems from other emerging economies. As a result, Asian markets have been under intense selling pressure, and European/U.S. equities look set to open sharply lower. Meanwhile, the FX markets are experiencing a broad based appreciation of the Dollar and Yen as gold crashes back below $1150/oz.
As for the Cable, the Pound has been hit a bit harder than the Euro since Sterling was already being weakened by cautious comments from BoE Governor King earlier this week. King explained that considerable obstacles remain on the path to recovery and the use of further alternative liquidity measures aren't out of the question. However, this week's economic data wasn't so bad, meaning the risk trades could hold their more important technical supports ahead of Monday's data releases. Although early Monday will be relatively quiet data wise, activity will pick up in the evening session as China releases its Manufacturing PMI data along with a monetary policy decision from the RBA. Britain will follow with HPI and its own Manufacturing PMI data on Tuesday. That being said, a string of positive economic releases could restrain a bit of the investor uncertainty stemming from Dubai's debt issue and allow the Cable to hold its more important technical supports.
Technically speaking, the Cable's more critical technical levels seem to be previous November lows along with our 1st tier uptrend line. Our 1st tier uptrend line runs through October lows, meaning a failure of our 1st tier could potential result in a retracement towards the 1.57 area. However, before we get ahead of ourselves, we will have to see how November lows and our 2nd tier uptrend line hold up should they be tested. As for the topside, the Cable faces multiple downtrend lines along with the psychological 1.65 level. Hence, there are quite a few near-term topside obstacles, and the immediate-term goal for bulls will likely be stabilization and to create a new bottom to build a base from.
Present Price: 1.6326
Resistances: 1.6341, 1.6374, 1.6395, 1.6427, 1.6457, 1.6489, 1.6532
Supports: 1.6301, 1.6285, 1.6257, 1.6242, 1.6212, 1.6183, 1.6153
Psychological: 1.65, November Lows