The Cable has cleared our 4th tier uptrend line and its psychological 1.65 level as the currency pair runs higher with the risk trade. Investors are heading back to riskier investment classes after China's Manufacturing PMI results showed Dubai's debt issue does not necessarily imply a slowdown in the overall growth of emerging markets. In addition to China's positive data release, the RBA raised its benchmark rate by another 25 basis points as widely expected. The RBA's vote of confidence in Australia's economic recovery is encouraging investors to reconsider the risk trade after the occurrence in Dubai shook FX markets. The Cable is a direct beneficiary of this boost in confidence despite a lighter than expected UK Manufacturing PMI number. However, UK's economy is more service-based, reducing the weight of manufacturing. Furthermore, Nationwide's HPI figure printed in line with expectations, implying a stable UK housing market. As a result, the Cable is showing little hesitation to participate in today's broad-based weakness of the Dollar.
Meanwhile, gold is knocking on the door of its psychological $1200/oz level as the S&P futures rally beyond their psychological 1100 level pre-market. Hence, the Cable's positive correlations are currently creating an environment supportive of further downward movements in the Dollar sound 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: 1.6596
Resistances: 1.6616, 1.6634, 1.6673, 1.6707, 1.6730, 1.6748, 1.6790
Supports: 1.6571, 1.6543, 1.6498, 1.6461, 1.6409, 1.6372
Psychological: 1.65, November Highs and Lows