Sterling Trades Higher Again

No, I’m not mad enough to make a call on Sterling overnight, but this afternoon’s action makes for an interesting chart.

This morning it looked as though another Sterling rally had petered out, courtesy of yet another MPC member’s comments (at least there’s no evidence of only one official song sheet at the Bank). But by the close of play the Pound had reversed all the losses and added to the original move for good measure. The GBPUSD rate is currently back above $1.64 and the daily chart is starting to look bullish.

The 21-day moving average, my favoured trend indicator, is poking up, the Parabolic SAR is in ‘buy’ mode and the MACD and RSI measures both show rising, but not overcooked, momentum.

The chart supports a move higher, and today’s reversal indicates a positive mood, but there’re a couple of obstacles, one technical, the other fundamental. The fundamental one is the release of UK government borrowings, due out on Tuesday at 9.30 am. This number has flown up the ‘important stats’ league over recent months as an indicator of how much closer to Zimbabwe we’re getting. Equally, there’s plenty of scope for a surprise good number.

The technical roadblock comes in the form of the downward trend line, which should be in the $1.6420-40 region tomorrow. If Sterling can muster the support to break clear of the line then a return to $1.67 could be on the cards. Apart from a few days in the middle of summer, the $1.67 level has acted a top-tier resistance. This level is the ‘last ditch’ 61.8% Fibonacci retracement of the fall from September 2008 to January 2009.

On the other hand, a failure at the downtrend line could see a swift move back, initially to support at $1.6250 and then the 21-day moving average at $1.6050.

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