The Cable is recovering above 8/17 lows as investors headed to the Dollar with uncertainty rising in reaction to the words of caution from economists around the world. The Pound has been under considerable relative weakness the last week. Investors continue to punish the Pound amidst the confusion surrounding the BOE's decision to inject 50 billion more into its QE package, not to mention King's vote to tack on an addition 25 billion to the tab. However, the Pound may experience a reversal in fortune with some key British economic data on the way. Britain hasn't released very much economic data since the BOE's monetary policy decision, so investors seem to have forgotten that British economic data was beating analyst expectations before the BOE delivered its monetary shock. In fact, analysts were caught a bit off-guard by the BOE's decision since Britain's data had been encouraging. Our reaction to the BOE's policy decision was one of belief that the central bank is attempting to devalue the Pound to keep currency from getting ahead of economic growth so as not to place British companies at a competitive disadvantage. Today's BBA Mortgage Approvals number beat analyst expectations, supporting the argument that Britain's housing market is in the midst of a remarkable recovery. Investors also shouldn't forget Britain's employment market has made vast improvements from the height of the economic downturn.
Though Britain won't release anymore economic data today, we will receive Nationwide HPI and CBI Realized Sales on Thursday followed by Revised GDP on Friday. All of these data points are normally market-movers, allowing investors to value the Pound more on fundamentals than the negative psychological impact of the BOE's injection of liquidity. We expect Britain's data to continue to outperform, re-energizing the Pound and sending the Cable back towards the lid of its 8/13-8/21 trading range. However, if British and U.S. economic data underperforms the GBP/USD could test the patience of 8/17 lows. In the meantime, 1.65 should continue to have a psychological impact on the Cable as the currency pair waves between 1.64 and 1.66.
Present Price: 1.6399
Resistances: 1.6407, 1.6430, 1.6458, 1.6508, 1.6544
Supports: 1.6380, 1.6366, 1.6342, 1.6311, 1.6278