The Cable has added onto yesterday's rally during today's Asia trading session in reaction to encouraging comments from the BoE's chief economist, Spencer Dale. During a business conference in eastern England, Spencer Dale noted that he believes the UK's economy has turned a corner. Dale's comments during the conference brought more buyers to the table despite yesterday's mixed econ data. While the Nationwide HPI figures printed about in line with analyst estimates, Manufacturing PMI data from both the UK and US dipped. However, investors seem to be brushing the sluggish manufacturing data aside and are opting to focus on the overall sustainability of the global economic recovery. Spencer Dale's comments combined with positive Chinese data and a rate hike from the RBA have proven enough to bring the risk trade back into play. Right now investors are waiting for this morning's ADP Non-Farm Employment Change number.
A tough employment market has been a thorn in America's side during its economic recovery. In a noteworthy development, last week's Unemployment Claims finally dipped below their psychological 500k level. Hence, a smaller than expected decline in today's ADP figure could result in a pop in the risk trade. On the other hand, sluggish ADP data could deflate the Cable's present rally and drag the currency pair back towards 1.65. In addition to today's U.S. employment release, investors are eagerly awaiting tomorrow's ECB meeting. Trichet had a more hawkish tone at the central bank's last press conference. Therefore, it will be interesting to see whether the ECB maintains this tone or even delivers a shock be extracting some of its alternative liquidity measures. Either way, tomorrow's ECB decision could have an impact on the overall risk trade. In addition to the ECB meeting, Britain will release its Halifax HPI and Services PMI data points. Investors will likely be paying rather close attention to the PMI number since services account for nearly 70% of the UK's GDP.
Meanwhile, gold has rallied beyond its psychological $1200/oz level and the S&P futures are holding strong above their own highly psychological 1100 level. Hence, the Cable's positive correlations are currently creating an environment supportive of further downward movements in the Dollar should economic fundamentals comply. That being said, investors should also keep an eye on the EUR/USD and its interaction with our 3rd tier downtrend line as well as November highs should they be tested. A topside breakout in the EUR/USD could signal a more extensive rally in the FX risk trade, thereby benefitting the Cable.
Technically speaking, the Cable still faces multiple downtrend lines along with 11/25 and 11/17 highs. Our 4th tier downtrend line appears to carry the most weight since it runs through 11/17 highs. A movement beyond our 4th tier could imply more extensive near-term gains in the Cable. As for the downside, the Cable could find supports in the psychological 1.65 area along with 11/20, 11/30, and 11/27 lows. Additionally, the GBP/USD has multiple uptrend lines serving as technical cushions.
Present Price: 1.6682
Resistances: 1.6707, 1.6730, 1.6748, 1.6790, 1.6821, 1.6847, 1.6872
Supports: 1.6644, 1.6691, 1.6600, 1.6571, 1.6543, 1.6498, 1.6461
Psychological: 1.65, November Highs and Lows