GBP/USD Heads Higher Following BOE Decision

The Cable is knocking on the door of our 4^th tier downtrend line after the BoE opted to increase its QE package by 25 billion Pound, less than the 50 expected.  The lighter than anticipated injection of liquidity has given a boost of confidence to the markets, and investors are opting to retreat from the Dollar in reaction.  Additionally, Britain received another positive data reading today with Manufacturing Production printing at 1.7%, 6 basis points higher than expectations.

Today’s Manufacturing Production number confirms the encouraging Manufacturing PMI data we have received recently.  Therefore, Britain’s services and manufacturing industries are both recovering quicker than anticipated, giving the BoE ample reasons to injection 25 billion instead of 50.  However, cautionary fundamental signs do remain considering the latest unemployment and GDP data left something to be desired.  Hence, investors shouldn’t get overly optimistic, especially considering we’re cheering the use of quantitative easing in the first place.

Regardless, today’s monetary policy decision may provide investors with enough incentive to send the Cable higher towards October and September highs, especially if tomorrow’s U.S. unemployment data prints positive.

Technically speaking, the Cable is facing what could be the final downtrend line separating the currency pair from more accelerated near-term gains.  Our 4^th tier downtrend line runs through October highs, meaning these highs could be tested relatively soon if the Cable doesn’t buckle under the pressure of our 4^th tier.  That being said, there still is a possibility that the Cable can reverse into its downtrend.  However, the Cable is sitting in a fairly advantageous position considering September highs are drawing near.  There isn’t much resistance between September highs and August highs, meaning the Cable could potentially have a clear shot at 1.70 should the fundamentals cooperate.  As for the downside, the Cable has multiple uptrend lines serving as technical cushions along with 11/5 and 11/3 lows.  Additionally, the psychological 1.65 level may now work in the Cable’s favor.

Meanwhile, investors should keep in mind neither the Cable nor the EUR/USD fully participated in the Cable’s topside breakout earlier this week.  Therefore, considering the BoE made a more hawkish than anticipated move today, gold may be hinting that a sizable pullback in the Dollar is in order.  However, the Cable may need a little help from upcoming U.S. econ data.  Britain will release some more data of its own tomorrow, Input PPI.  Investors are expecting an increase from -0.5% to 1.6%.

Present Price: 1.6607

Resistances: 1.6630, 1.6662, 1.6688, 1.6714, 1.6736, 1.6783

Supports: 1.6591, 1.6566, 1.6566, 1.6538, 1.6510, 1.6475, 1.6430

Psychological: 1.65, October and September highs

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