Where Will Cable Go From Here?

faithmight

Cable rallied hard last week but despite the strong rally price still remains in corrective mode and a reversal has still not been accomplished. After last week’s rally, price remains above 1.6250 former-resistance-turned-support even on price dips below the level. So will the $GBPUSD stage a reversal and continue to march higher towards 1.6500? Or will the LT downtrend prevail and find price back below 1.6000 to challenge MT support at 1.5830? Last week, my attention had been called to the weekly chart of the $GBPUSD and the clues revealed in it to answer these questions.

The weekly chart of the $GBPUSD shows just how strong the downtrend has been. Price has fallen for 7 straight weeks essentially producing lower lows and lower highs since printing the November 2009 high at 1.6878 to fall as low as 1.5830 into the 2009 year end. The downtrend, as a result, had become very over-extended making the possibility of retracement very likley. Looking at the Fibonacci levels of the move down from the aforementioned high and low, we see that a corrective bounce off the lows could take the pair to as high at 1.6354 (the 50% Fibonacci retracement level) and the downtrend would still be intact.

And that is exactly what happened last week as the $GBPUSD rallied from 1.5894 and found resistance at last week’s high of 1.6355. After the 1 pip breach of the 50% Fibonacci level, the $GBPUSD has since retreated to as low as 1.6207. This is well short of the 38.2% Fibonacci level of the first bullish wave as drawn on the daily chart of the $GBPUSD at 1.6178.

If the pair was truly bearish, price would have remained below 1.6250, the large quarter point, and headed lower towards 1.6000. Rather, price went higher from 1.6207 to close the week right around 1.6250. When the market opened this week, price gapped higher. Price action signals continued strength as it continues to find support at the large quarter point at 1.6250 on dips. As long as price remains above 1.6250, I am bullish on the $GBPUSD.

All $GBP traders will be looking this week to the release of the Bank of England (BoE) meeting minutes on Wednesday. We have already had dovish minutes from the US Federal Reserve and dovish statements from European Central Bank (ECB) President Jean-Claude Trichet last week after the ECB kept rates unchanged during their policy meeting. These 2 central bank developments put even more spotlight on the coming BoE meeting minutes since the BoE did not move on policy at all during the last meeting. Traders will be looking to the minutes for insights into discussion of the quantitative easing (QE) program and to see if interest rates were discussed in light of hawkish comments from members of the BoE last week. Remember that the market trades on expectations and everything else we know fundamentally is already priced into the exchange rate. The market already perceives the BoE to be the most dovish of the G7 central banks. So ANY hint of tightening monetary policy through QE exiting or interest rate hikes will send the $GBP higher as the market’s expectations of the BoE monetary policy will shift towards a more hawkish sentiment. It would also sharply juxtapose the BoE against the now dovish perception of both the Fed and the ECB. Any hawkish discussion as revealed by the BoE minutes and expect the $GBP to rally especially against the $EUR and the $USD.

Remember, trade what you see, folks, not what I think.


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.

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