By Fast Brokers – The Cable is posting a solid rally Thursday after the BoE kept its 125 billion Pound quantitative easing plan unchanged. Though many analysts were expecting a 25 billion bump up this time around, we warned that these rumors may have been unsubstantiated. Investors are taking the BoE’s inaction as a sign of confidence in the British economy. However, we believe the central bank just wants to see how the remainder of the 125 billion Pounds fares as its injected into the economy over the next month or so. Therefore, we believe the optimism resulting from today’s BoE meeting may be short-lived.
Regardless, the Cable has received a much-needed boost above the psychological 1.60- level for the immediate-term, and is currently testing our 2nd tier downtrend line. We haven’t seen any abnormally large volume to the upside thus far today, so it will be interesting to watch how the GBP/USD interacts with our 2nd tier downtrend line. Other than the BoE meeting, investors are buying up the Pound after Britain announced a narrower than anticipated Trade Balance deficit. Even if the Cable should break through our 2nd tier downtrend line large barriers remain, including our 3rd tier uptrend and downtrend lines and the psychological 1.65 level. However, it would be encouraging for bulls to see the Cable settle back in the middle of the June trading range. Despite the positive developments made in the Cable over the past 24 hours, we believe the downtrend remains the prevalent force in this picture as with the EUR/USD. We would need to see a large, technical reversal for us to alter our present negative outlook.
Meanwhile, all eyes are on U.S. equities and the 2nd quarter earnings season. Alcoa kicked off the 2nd quarter with lower than expected losses as a result of effective cost-cutting by management. Investors are encouraged by the better than anticipated number from Alcoa, and are stabilizing the S&P futures in reaction. However, earnings season doesn’t really heat up until next week, so it’s too early to judge how U.S. corporate earnings will fare as an entity. Although Britain will release its Input PPI tomorrow, the GBP/USD should remain positively correlated with U.S. equities trend-wise since the S&P futures are trading near important supports. Furthermore, investors should keep in mind that British economic data has come in mixed this week. Today’s lower than expected trade balance deficit is countered by negative numbers concerning manufacturing and housing. Therefore, the pressure to the downside remains.
Present Price: 1.6242
Resistances: 1.6264, 1.6287, 1.6321, 1.6367, 1.6428
Supports: 1.6210, 1.6152, 1.6129, 1.6079, 1.6026
Psychological: 1.60
Market Commentary provided by Fast Brokers.
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