GBP/USD Continues Its Recovery After Positive Manufacturing Production

The Cable has jumped over our 2^nd tier downtrend line as investors celebrate a better than expected manufacturing production number, accompanied by an upward revision of the previous release.  Meanwhile, investors seem to be ignoring the declining trade balance, signifying a rise in imports and/or decrease in exports.  Since recent data shows consumption is improving in Britain, we assume the declining trade balance indicates a rise in imports.  Overall, we continue to see positive progression in Britain’s economy.

Despite the GBP/USD’s encouraging recovery on climbing volume, we haven’t seen volume to the upside match the volume during last week’s pullback.  Therefore, we are still cautious and waiting to see how the GBP/USD behaves should it approach our 3^rd tier downtrend line.  If the Cable can get past our 3^rd tier on rising volume, then we will be comfortable re-activating our positive outlook on the currency pair.  Meanwhile, the S&P futures are rallying, trading just beneath 2009 highs.  If U.S. equities breakout to the upside, the Cable might find the strength to get past our 3^rd tier downtrend line and previous June highs.  The EUR/USD is facing a similar obstacle to the upside, showing we haven’t eclipsed the impact from last week’s downturn yet.  Hence, we are sticking to the evaluation that we may be heading into a new near-term downtrend unless the Cable overcomes the aforementioned barriers to the upside.  Britain will be pretty quiet for the remainder of the week news-wise, seemingly leaving its immediate-term performance in the hands of U.S. equities.

Fundamentally, we find resistances of 1.6371, 1.6412, 1.6458, 1.6497, and 1.6574.  To the downside, we see supports of 1.6315, 1.6270, 1.6219, 1.6111, and 1.6054.  The 1.60 level acts as a psychological cushion with 1.65 serving as a psychological barrier.  The GBP/USD is currently exchanging at 1.6386.

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