The Cable pulled back on heightened volume yesterday only bounce off of our 2nd tier uptrend line this morning. The Pound is experiencing relative strength despite weaker than expected Manufacturing and Construction PMI data along with a disappointing Net Lending to Individuals number. The past two sessions of economic data reveals why the BOE has been more aggressive with its monetary policy. One would anticipate relative weakness in the Pound in reaction to these data points. However, the EUR/GBP has experienced a sharp contraction while the Cable balances. Considering the pace of the EUR/GBP's recent surge, we believe the Pound may have just been oversold and we are witnessing a natural bounce. Therefore, today's bottom in the Cable may have little staying power should the S&P futures continue their downturn as indicated. The S&P futures were flooded by heightened sell-side action yesterday and were accompanied by a hefty pullback in crude. The downside interest around the market indicates the present downturn could have legs. The one positive correlative sign for the Cable is today's pop in gold. However, we wouldn't read too far into gold's strength right now.
Britain will keep the data train rolling after the last two weeks of relative silence. Britain will release its Halifax HPI and Services PMI data tomorrow. While we expect the Halifax HPI to satisfy investors considering the recent outperformance of British housing data, the Services PMI number will be the headline to watch. The Services PMI data should have a large impact on the GBP/USD since services make up such a large portion of Britain's GDP. Meanwhile, we will receive more key data from the U.S. along with and ECB monetary decision. Therefore, we expect the level of volatility to remain high throughout the rest of the week. Meanwhile, if the S&P futures should extend their leg down we expect the Cable to follow suit.
Technically speaking, the Cable is fortunate to have found support in our 2nd tier uptrend line. If not, we would have surely witnessed a retest of the highly psychological 1.60 level. Not to mention our 1st tier trend line is sitting in the depths below. While the GBP/USD has 1.60, the EUR/USD has 1.40. Therefore, even though there may be some more space to the downside, each major Dollar cross has a strong psychological level waiting in the wings. On the other hand, the GBP/USD has quite a ways to go to re-establish its upward momentum. The GBP/USD has to deal with all three of our downtrend lines along with Monday's highs and the highly psychological 1.65 level. However, the Cable may choose to consolidate today ahead of tomorrow's busy session.
Present Price: 1.6222
Resistances: 1.6251, 1.6268, 1.6305, 1.6335, 1.6360
Supports: 1.6212, 1.6178, 1.6146, 1.6119, 1.6065
Psychological: 1.60, 1.65