The GBP/USD is stabilizing further above our 3rd tier uptrend line, yet can manage to break free of our 2nd tier downtrend line. These two trend lines are colliding soon, and we notice multiple inflection points occurring in the EUR/USD. Hence, the two currency pairs are implying there could be a jolt of volatility soon. However, trading should be light today since many traders are taking a long weekend for the Labor Day holiday. Meanwhile, the Pound continues to enjoy a relative strength as the EUR/GBP slides lower. Investors were relieved by the solid Services PMI number yesterday after the weak economic data combined with the BOE's monetary shock. However, a higher than expected U.S. headline Unemployment Rate is capping movements to the topside. The S&P futures are back above 1000, yet we expect the psychological zone to keep equities in check until there is a technically significant movement in either direction. The S&P's gravitation towards 1000 is keeping the GBP/USD locked within a reasonable trading range right now.
Britain's Halifax HPI release was pushed back to Monday, and we expect the data to come in at or above analyst expectations since the UK's housing market is holding up well. We expect market volatility could increase next week. Although we've been chomping at the bit for some volatility, a key technical movement may finally occur with the Labor Day holiday marking the official end of summer. Additionally, we'll receive some key economic data throughout the week, most notably China's Industrial Production number and a BOE monetary policy decision on Thursday. There has been a lot of chatter concerning whether China's economy is slowing down, and the wave of data on Thursday may help clear the air. Meanwhile, investors will be keen to see how the BOE addresses its alternative liquidity program. With inflection points approaching in both the GBP/USD and EUR/USD, the ingredients are on the table to make a volatile week.
Technically speaking, although the GBP/USD has experienced some encouraging strength lately, the currency pair still has our 2nd and 3rd tier downtrend lines to deal with. Our 3rd tier downtrend line is a key for attaining more sizable gains towards 1.65 and August 21st highs. Furthermore, as long as our 3rd tier downtrend line bears overhead a medium-term downtrend line will weigh on the currency pair. A strong downward force remains with analysts cautioning about overbought equity market. Should the S&P futures opt to make a large leg down the GBP/USD would likely follow suit. As for the downside, the GBP/USD has built a little breathing room, most notably our 2nd and 3rd tier uptrend lines and September lows. Additionally, even if our uptrend liens should fail the currency pair has the highly psychological 1.60 level to fall back on. We will have to wait and see how the next week unfolds since it seems investors are content heading into the holiday weekend with a consolidative pattern.
Present Price: 1.6330
Resistances: 1.6360, 1.6376, 1.6408, 1.6443, 1.6469, 1.6520
Supports: 1.6324, 1.6300, 1.6267, 1.6239, 1.6212
Psychological: 1.65, 1.60