In Typical Fashion, Cable Set To Rally

• faithmight
• March 8th, 2010

Two weeks ago Friday, I wrote how I saw the market turning for the $GBPUSD. Instead when the market opened last week, cable plummeted to new lows to 1.4779. The new lows invalidated the first 2 red flags I had indicated in my article. However, since making that new low, the $GBPUSD has been in an up channel making higher lows and higher highs.

With sterling facing such poor fundamentals, what could rally this beleaguered currency? The answer: RISK. Friday’s release of the non-farm payrolls (jobs) report was better-than-expected with the unemployment rate dropping from the previous month and the country loosing fewer jobs than expected. The market took that report as a signal that the world’s largest economy was still recovering and as such investors’ risk appetite increased. When risk appetite increases in the markets, $GBP benefits every single time across the board. Now while I don’t believe that sterling can truly rally with such a bleak economic, fiscal, and monetary landscape, I do believe in technical corrections.

Now that price has broken above the 50% Fibonacci retracement level of the 2nd bearish wave on the daily chart, watch what price does at 1.5250. If price can get above AND CLOSE above that level, I am watching for the rally to extend towards 1.5300 where we may find resistance at the 50% Fibonacci level on the weekly chart. The $GBPUSD has already corrected past the weekly 38.2% Fibonacci level so the possibility of a return to the downtrend is very likely. Price action towards and at 1.5250 will hold the clue to whether this rally continues toward 1.5300 or reverses back towards 1.5000.

It’s actually a light calendar this week from both the US and UK. From the US, this week is retail sales and trade balance numbers. Out of the UK, we have trade balance, GDP estimate, industrial production and manufacturing production. A light calendar makes the pair much more vulnerable to comments coming from the BoE members or European Union officials so be aware of what is coming off the newswires.

And as always, trade what you see folks, not what I think!

Tickers: GBPUSD

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