GBP/USD’s Tight Mid-June Trading Range Fails

By Fast Brokers – The Cable finally broke below the bottom-end of the mid-June trading range we were eyeing before, represented by our previous 1.6212 support.  There are whispers floating around Monday in regards to the reason behind the Cable’s pullback, but we don’t see any concrete evidence.  We believe investors are setting a tone for the week ahead, highlighted by the beginning of the 2nd quarter earnings season and the G8 meetings.  The upcoming earnings season will be a determining factor in settling the battle between the bulls and the bears.  The bulls have suffered a large setback today, though we’ve yet to see a confirmation in high volume to the downside.  The GBP/USD is balancing along our new 2nd tier uptrend line as it approaches an inflection point with our 1st tier downtrend line.  Our 3rd tier uptrend and 2nd tier downtrend lines are also colliding today, meaning volatility could rise over the next few trading sessions.

The FX market seems to be waking from its daze, and it appears investors may be ready commit to a direction.  Crude futures are posting large losses as they freefall below $65/bbl while the S&P futures trade at June lows.  Unfortunately for the bulls, the downtrend is picking up momentum, and we may be a confirmation away from settling on a near-term downtrend outlook.  Investors are indicating they expect economic struggles in the near-future with recent economic data coming in mixed.  Britain’s surprisingly negative GDP and current account data last week shook the bulls from their comfort zone.  Therefore, investors will be paying close attention to tomorrow’s Halifax HPI and manufacturing production data points.  Since Britain’s manufacturing PMI came in shallow last week, we expect a negative manufacturing production number.  If both British data releases are negative tomorrow, this could apply considerable immediate-term downward pressure on the Cable.  More disappointing economic data releases would stoke the concern that we may have witnessed a large head-fake in global economic performance in the first half of the year.

With investors and analysts focused on the beginning of the earnings season and the G8 meeting, the BoE’s monetary policy decision on Thursday has fallen to the background.  However, volatility in the Pound could pick up as the BoE meeting draws nearer.  Investors will be curious to see how the BoE handles its current quantitative easing program, and whether the central bank increase its injection of liquidity.  As for the immediate-term, if the Cable can’t hold our 2nd tier trend line, we will likely see a retest of the psychological 1.60 area.
Present Price: 1.6132

Resistances: 1.6133, 1.6152, 1.6183, 1.6212, 1.6245, 1.6278

Supports: 1.6082, 1.6052, 1.6018, 1.5978, 1.5924, 1.5887

Psychological: 1.60

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