The pound sterling (“cable”) has been trending down against the dollar since mid-November of 2009. It has fallen from the 1.69 area to a low of 1.5831 on December 30, 2009. It rebounded from the low but has found resistance at the 1.6230-40 area, forming a double top on the hourly chart (as shown by the yellow arrows on the chart below).
Click on the image too see full-sized chart.
One of the strong short-term support/consolidation areas (indicated by the red arrow) ranges from 1.6050-80. It is recommended to wait for a breakout from this level before opening a short-term trade. Additionally, if the pair rallies, I would be thinking about selling near those recent top areas (unless there is significant news that changes the fundamental short-term outlook for the pair).
Zooming out, we can see that the pound is on a bearish trend and will likely hit its October 2009 low around the 1.5700 zone. The movement towards or away from that point is likely to be led by the BoE interest rate decision on Thursday and the FOMC minutes which will be released on Wednesday.
Here is the daily GBP/USD chart:
Click on the image too see full-sized chart.
The pair recently broke above its channel in the daily chart on the news of better credit conditions and higher housing prices in the UK; however, the up-tick has not been strong enough to reverse the trend of the pair.
Overall, the trend on the GBP/USD is bearish and we want to wait for it touch the 1.5700 zone before seeing whether a trading opportunity is still present. This week is full of economic data and will likely create some major movement in the pair. Lastly, as seen in the graph, the area at the level of the letter A is a consolidation area; we don’t want trade in that unpredictable tight range.
This week, the BoE will announce its interest decision and the producer price index will be released. Additionally, and probably more important, the FOMC minutes and U.S. non-farm payrolls data will be released.
This trade will be on deck for now.
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