The Cable is retreating from yesterday's pop after Public Net Sector Borrowing came in much higher than analyst expectations. Today's unsettling debt-related data comes after BOE Minutes revealed King voted to increase QE by 75 billion rather than the 50 billion passed by the central bank. We were a bit shocked by King's proposal considering most British data has been outperforming expectations. In fact, we were surprised the BOE decided to inject more liquidity in the first place. The development is unsettling Pound traders as uncertainty rises regarding the BOE's future monetary policy. We believe King may fear the Pound is overheating from previous investor optimism. The faster the Pound appreciates, the less attractive British services become to foreign countries. Hence, King may be trying to give Britain's economy a little more breathing room as it attempts to recover from a historic downturn.
Speaking of recent improvements in Britain's data, Retail Sales came in a basis point ahead of analyst expectations today. Furthermore, Britain's CPI and RPI outperformed earlier this week. As a result, the fundamentals are telling a more positive story than what investors are interpreting from King's vote at the BOE meeting. With Britain's data finished for the week, the GBP/USD's immediate-term movement should be highly dependent on the performance of U.S. equities coupled with the EU's slew of PMI data on Friday. Though we've seen the Cable's correlation with U.S. equities flip-flop this month, we expect the positive correlation should play out until further notice.
Technically speaking, both the Cable and the EUR/USD failed to tackle their respective August 13th highs yesterday as the currency pair's didn't receive enough buy-side interest to power through. Hence, our 3rd tier downtrend line and August 13th highs continue to play an important role to the upside. Meanwhile, the GBP/USD's gravitation towards the 1.65 area continues. This psychological zone is turning out to be as strong as we anticipated, and the currency pair will likely need an upward movement with conviction to leave 1.65 in the rearview. As for the downside, the Cable has Wednesday lows, our 1st tier uptrend line, and August 17th lows to fall back on. Investors should also note our 1st tier uptrend line is reaching an inflection point with our 2nd tier downtrend line, signaling the possibility of heightened near-term volatility.
Present Price: 1.6471
Resistances: 1.6482, 1.6512, 1.6544, 1.6569, 1.6608
Supports: 1.6455, 1.6428, 1.6398, 1.6376, 1.6346