GBP/USD Enjoys Inaction from the BOE

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The Cable has reached the lid of the 8/13-8/21 trading range after the BOE kept its alternative liquidity package as is. Investors shrugged off a weaker than expected Halifax HPI number, instead opting to give the Pound a relative strength as highlighted by the large pullback in the EUR/GBP. The Halifax number is a bit surprising since Britain's housing data has been stellar lately. Investors may take more notice if we receive another setback in housing data in the near future. Focus will return to the East tonight with China set to release a flood of economic data including Industrial Production. Therefore, the FX markets should remain volatile over the remainder of the week since the longevity of the growth story in China has been brought into question lately. Since China has been leading the charge of the global economic recovery, any setback in China's economic data late Thursday PST could place some downward pressure on the Cable. However, since the Cable and EUR/USD experienced technical breakouts on Tuesday, we believe China's economic data will likely come in ahead of expectations and help fuel the GBP/USD's rally.

The GBP/USD is looking to get above the lid of the 8/13-8/21 range and create some more breathing room between present price and the psychological 1.65 level. Regardless, the Cable still has quite a bit of work to do to the topside due to the BOE's large injection of liquidity a few weeks ago. The pullback from August highs paved a bumpy road for the uptrend, whereas the EUR/USD broke free of its August highs on Tuesday's technical movement. Though lying in the distance, our new 2nd tier downtrend line should serve as a key barometer regarding the health of the GBP/USD's medium-term uptrend. Since our 2nd tier downtrend line runs through August highs, an eclipse of the 2nd tier should indicate a large breakout to the topside. However, we will have to see the data from China before we get ahead of ourselves. Britain will also release its PPI data tomorrow and investors are expecting producer prices to grow by 0.9%. If data should disappoint over the next 24 hours, the GBP/USD has technical cushions in our three uptrend lines along with intraday lows and the psychological 1.65 level. We maintain our bullish near-term outlook on the GBP/USD regardless of any immediate-term pullbacks due to the overwhelming bullish message delivered on Tuesday.

Present Price: 1.6608

Resistances: 1.6608, 1.6635, 1.6657, 1.6668, 1.6701, 1.6722

Supports: 1.6589, 1.6570, 1.6552, 1.6511, 1.6481

Psychological: 1.65

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