The Cable experienced a solid rally today after the BoE uniformly kept its QE package unchanged. Furthermore, the BoE didn't act on the idea of lowering the deposit rate. Hence, the central bank feels comfortable with its present level of liquidity. However, the BoE's wording certainly left the door open for further liquidity measures down the road. The Pound reacted positively to the neutral behavior of the BoE, registering large gains against both the Dollar and the Euro. Today's development should help stem the bleeding caused by Governor King's exceptionally dovish attitude. However, BBA Mortgage Approvals printed below expectations today, putting a damper on the positive outcome of the BoE meeting. The recovery in Britain's housing market has been the most impressive part of the nation's economic recovery. We saw the recovery in the Claimant Count Change level off last week as well. Therefore, today's strength in the Pound may not be long lasting if the recovery in British economic data slows down. Such a development would give BoE Governor King ample reason to move forward with additional liquidity measures. Furthermore, despite today's decision by the BoE, we believe it is the central bank's intention to keep the Pound comparatively weak in order to buoy its struggling services sector. Hence, we maintain our negative outlook on the GBP/USD trend wise over the near to medium-term.
As for the time being, the Cable received much needed support above previous September lows. Britain doesn't have any more economic data on tap for the rest of the week, leaving the GBP/USD's performance in the hands of the G20 meeting and U.S. economic data. If the G20 summit goes smoothly and U.S. economic data outperforms like last week, the GBP/USD may experience further strength to the topside. However, the currency pair must face multiple downtrend lines along with 9/17, 9/15, and 9/11 highs. Therefore, the GBP/USD has quite a few technical obstacles to overcome before having the opportunity to log more substantial gains. As for the downside, the GBP/USD also has multiple uptrend lines serving as technical cushions. September lows continue to play an important role along with July lows and the highly psychological 1.60 level. Hence, the GBP/USD has several strong supports and resistances to deal with before breaking out of its present trading band. Regardless, we maintain our negative outlook trend-wise regardless of immediate term strength as long as our topside barriers are in place.
Present Price: 1.6409
Resistances: 1.6417, 1.6434, 1.6456, 1.6469, 1.6485, 1.6505
Supports: 1.6395, 1.6380, 1.6354, 1.6326, 1.6303
Psychological: 1.60, 1.65