GBP/USD Bounces Past 1.60 On Broad-Based US Dollar Weakness

The Cable finally decided to participate with the gold rush and broad-based weakness of the Dollar.  The GBP/USD popped above the psychological 1.60 level and 10/6 highs.  However, the Cable is buckling under the pressure of our 3^rd tier downtrend line and 9/30 highs.  The GBP/USD finally shook free of its tight and is looking to piece together a more substantial rally than the one we witnessed on 9/30.  A strong movement past our 3^rd tier downtrend line would likely yield such an outcome since it runs through 9/01 highs.  The BoE kept its monetary policy unchanged as did the ECB.  Both monetary decisions are in line with analyst expectations and are presently having a limited impact on FX markets.  However, more important will be the press conferences and quotes from BoE and ECB members over the remainder of the week.  Words have moved currencies as much as actions.  Therefore, investors will be looking to see if BoE governor King makes any additional dovish comments as he’s been prone to do.

Britain will be light on the econ data wire until tomorrow’s PPI Input and Trade Balance releases.  Both will be important gauges for future monetary policy.  Weak input prices and a large Trade Balance deficit would only encourage the BoE to maintain a dovish monetary stance to help buoy prices and stimulate external demand for British goods and services.  Therefore, volatility could pick up as the week comes to a close.  FX markets will also be sensitive to Q3 earnings releases.  Strong Q3 earnings would help drive equities hire while weakening the Dollar further, and vice versa.  However, the Pound should remain at a disadvantage regardless of any continued near-term broad based weakness in the Dollar due to the state of Britain’s economy and the comparatively dovish stance of the BoE.

Technically speaking, the GBP/USD faces multiple downtrend lines along with the 9/30 highs.  The Cable’s bounce past 1.60 is the first step to more significant gains, yet the currency pair will need to break through the aforementioned technical barriers before realizing more substantial movements to the topside.  As for the downside, the GBP/USD has cushions in 10/2 and 9/28 lows along with multiple uptrend lines.  Recent strength in the Cable has created some near-term breathing room.  Consecutive higher lows (9/28, 10/2, 10.7) create a strong base for the Cable to fall back on over the near-term.  Therefore, immediate-term movements to the downside should be limited.    However, a failure of these triple lows and our 1^st tier uptrend line would heighten near-term losses.  Overall, extraordinary breakouts in gold and the AUD/USD create an environment for a new near-term uptrend line in the Cable.  Therefore, investors should keep a close eye on the Cable’s interaction with our technical barriers over the next 24 hours.

Present Price: 1.6049

Resistances: 1.6072, 1.6095, 1.6127, 1.6145, 1.6168, 1.6191, 1.6211

Supports: 1.6045. 1.6024, 1.5992, 1.5964, 1.5921, 1.5900

Psychological: 1.60

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