By Fast Brokers – The Cable slipped through our 2nd tier uptrend yesterday as the currency pair followed gold and the EUR/USD lower following negative CBI realized sales data. However, the Pound continued to flex its muscles, and the GBP/USD exerted its relative strength by bouncing off of our 1st tier uptrend line, avoiding an immediate-term protracted selloff like the EUR/USD. The EUR/GBP confirms the Pound’s relative strength, crashing beneath its 7/24 lows. It’s interesting the GBP/USD continues to experience a relative strength considering net lending to individuals came in even lower than expectations. Net lending to individuals is at an all-time low, and there have been no signs of a bottom yet. This can’t bode well for British consumption, supported by the negative showings from CBI realized sales and last week’s retail sales data. However, if tomorrow’s HPI number comes in beneath reduced expectations, then the GBP/USD may participate more to the downside.
The GBP/USD may be experiencing immediate-term strength since investors are still under the impression that the BOE has no intention to expand its $125 billion QE program. However, if economic data continues to come in mixed with a negative tint, the BOE may have no choice but to make another injection of liquidity. The Cable’s relative strength also depends on the S&P’s ability to hold strong above our 2nd tier uptrend line. If the S&P’s uptrend gives way in the near future the GBP/USD would likely follow U.S. equities lower due to their ultimate positive correlation. On a discouraging note, gold is declining at an alarming rate, a negative sign for the Cable’s positive correlation. We’ll keep an eye on the Cable’s present divergence from gold and the EUR/USD to see if a new norm develops. However, we’ve witnessed brief divergences in the FX markets in the past only to watch the correlations lock back into place.
Technically speaking, if our 1st tier uptrend line and intraday lows should fail, the next lines of defense would likely be 7/22 and 7/14 lows. The Cable is still in the thick of the dense June trading range, meaning there are solid walls on the bottom and topsides. As for the topside, the GBP/USD needs to overcome our 2nd tier uptrend and 3rd tier downtrend lines along with 7/28 highs. If the S&P futures continue to consolidate, we may witness an upward sloping consolidation in the GBP/USD towards our 3rd tier downtrend line as its approaches an inflection point with our 2nd tier uptrend line. Once again, investors should tread cautiously since the large pullbacks in gold and the EUR/USD raises a red flag.
Present Price: 1.6439
Resistances: 1.6441, 1.6467, 1.6500, 1.6542, 1.6555
Supports: 1.6405, 1.6372, 1.6347, 1.6324, 1.6301
Psychological: 1.65
Market Commentary provided by Fast Brokers.
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