Spotlight On GBP/USD This Week

• faithmight
• January 26th, 2010

I really like the way the $GBPUSD has been developing since the beginning of the year. I have been bullish the pair since the new year and, technically, everything has been working out as expected.

Since making the lows at 1.5831, cable has consistently made higher lows and higher highs, thus building a very nice up channel on the daily chart. The $GBPUSD even managed to stage a technical reversal with the most recent highs but the anticipated breakout beyond 1.6400 was not sustainable. Price found resistance ahead of the 61.8% Fibonacci retracement level on the weekly chart at 1.6477 with the January 19th high of 1.6457. Price has since retreated back towards 1.6000 but never made it to the whole number. Instead, in quite bullish fashion, price bottomed at 1.6076 and returned to the 1.6250 large quarter point, as expected on such a pullback.

Monday’s price action saw the cable rally resume but find resistance right at the 50% Fibonacci level of the first bearish wave on the daily chart. The $GBPUSD then corrected from the highs finding support around the 1.6200 whole number heading into the start of the week’s very busy economic calendar.

On the calendar this week, the main event out of the UK will be the release of the 4Q GDP numbers. UK CBI and housing prices are also due this week. If this news is $GBP supportive, as widely expected, cable will rally taking price to 1.6500. This level is a very key level for cable. How price behaves at 1.6500 will signal direction for the currency pair. If price can close above this level for the week, expect more bullish price action. However, if the $GBPUSD cannot hold the level and falls below 1.6500, the current rally may actually be exhausted and price could fall and resume the MT downtrend.

However, the $USD also has a slew of economic release AND corporate earnings reports this week that could support the greenback and cause further declines in the $GBPUSD. FOMC meets this week and all traders will be anxious to see any change in language that would hint to further tightening of monetary policy. Also out this week is 4Q GDP from the US which will be compared to the UK GDP number. US economic growth is forecasted to grossly outstrip the growth expected from the UK. Additionally due this week from the US is housing numbers, consumer confidence, manufacturing numbers, and durable goods.

The calendar actually supports $USD strength (provided that the dollar trades on fundamentals and not risk) and, thus, a fall in the $GBPUSD back to 1.6000 by the end of the week is certainly a possibility. However, until FOMC is released, I expect the $GBPUSD to rally to 1.6500 and make new highs above last week’s high at 1.6457 if news is released as expected or even surprises to the upside.

Mind the calendar this week as news has the potential to cause some big moves in the $GBPUSD in BOTH directions. And as always, trade what you see, not what I think.

Tickers: $USD, GBP, GBPUSD

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