The GBP/USD is declining rapidly once again after 1.60 and our multiple uptrend lines failed to hold. Britain's Manufacturing and Construction PMIs both came in weaker than expected, further confirming the pullback in global economic data. On a positive note, Britain's Nationwide HPI came in a basis point stronger than expected. Though last week's housing data hit a speed bump, British housing prices are holding up relatively well. However, the 0.9% growth is still a sizable decline compared to the previous release of 1.4%. The negative Manufacturing PMI appears to be the most disconcerting of the three, and is likely why BoE Governor King has approached monetary policy with a dovish stance. Therefore, we expect King to maintain his dovish behavior unless manufacturing and services data turns a corner for the better. Meanwhile, the Pound is dropping like a rock as we recognize sizable losses in the Cable and gains in the EUR/GBP.
The Cable has really put itself in a tough position by failing to stabilize above the psychological 1.60 level this last go-around. The currency pair is now staring at September and June 2009 lows. Furthermore, the GBP/USD's ambivalence towards our 3rd tier uptrend line is discouraging for the medium-term. If September lows fail to hold we could see a retracement towards our 2nd tier uptrend rather quickly. The fact our 2nd tier uptrend line connects through March 2009 levels is a bit worrisome, since a failure of our 2nd tier could imply a medium-term downtrend towards the 1.40 level. To make matters worse, there's quite a bit of room between our 1st tier uptrend line (off-grid) and our 2nd tier uptrend line. Therefore, losses could accelerate over the near-term if immediate technical cushions don't hold up. As for the immediate-term, investors will look to September lows and our 2nd tier uptrend line for technical support. The Cable's intraday performance will rely upon the outcome of U.S. unemployment data and the currency pair's positive correlation with U.S. equities. Negative data results and a movement in the S&P futures towards 1000 would likely encourage the Cable to test the boundaries of its technical cushions.
Britain will get back on the data train first thing Monday morning by releasing its Halifax HPI and Services PMI. The Services PMI release will be very important to the Cable's near-term performance since services account for a large majority of Britain's GDP. A negative Services PMI number would only create another drag on the Pound. Meanwhile, we maintain our negative outlook on the GBP/USD trend-wise due to the aforementioned reasons.
Present Price: 1.5844
Resistances: 1.5900, 1.5921, 1.5950, 1.5978, 1.6016, 1.6045
Supports: 1.5833, 1.5807, 1.5776, 1.5750, 1.5718, 1.5671
Psychological: 1.60, 1.55