Friday Showdown: Sterling Pre-NFP

• faithmight
• August 5th, 2010

Our good friends at CMC Markets shared an update on the Sterling Index with this chart:

I agree with both Michael Hewson and Ashraf Laidi about the double top at 82.54.With the tops and bottom marked on the above chart, we can calculate key Fibonacci levels of 81.25 at 50% Fibonacci and 80.97 at 61.8% Fibonacci. No doubt 81.00 whole number will be the level to watch should sterling correct further off the highs.

Given this extra information provided by the Sterling Index, we can anticipate some levels to watch as we allow the market to interpret the US non-farm payrolls (NFP) event during Friday’s trading session. I will be watching the $GBPUSD and $EURGBP but traders may look to other sterling pairs for similar opportunities and specific setups.

$GBPUSD Levels To Watch

The shaded area in the $GBPUSD daily chart has been on my charts for at least 2 months now. Price was trading in the 1.4900′s then and I never really imagined that sterling could stage such a rally versus the US dollar. This is the last area for bears to defend their midterm downtrend. 1.5960 has held up quite strongly even after several attempts to break higher met with lower highs this week. After the 9-day rally, prices certainly were expected to pullback. The question in the market is, of course, by how much. A break below 1.5750 will target 1.5700. And a break below there will have bears trying for 1.5550. A break above 1.5964 will certainly have prices headed for the major whole number and psychological level at 1.6000.

$EURGBP Level To Watch

Since the $EURGBP has been moving in a much tighter range this week, a look at the hourly chart suffices to watch for key levels. Since breaking below 0.8300 to a low of 0.8252, $EURGBP has become rangebound and staging higher lows. A break above the 0.8324 highs will look for a return to the 0.8400 level while a break below 0.8250 targets 0.8200.

Keep your eye on the calendar! There is still a slew of UK economic releases before NFP which may still cause moves in sterling including manufacturing production, industrial production, and inflation (PPI) numbers. Weak numbers or disappointments will weaken sterling going into the NFP release. Expect volatility, be smart, patient, and trade what you see!

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: GBP, index, sterling

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