Techs – Price action thus far today has been quite interesting with the pair initially trading lower to take out the previous daily low, ending a sequence of 4 consecutive daily higher lows, before reversing sharply to trade back towards daily opening levels. While the overall trend is indeed grossly bearish, our outlook for the pair remains constructive with inter-day studies still showing plenty of room for corrective upside before bear trend continuation. Recently, much of the broad based USD busying has come in the European session before a US session, which over the past week, has been selling USDs more aggressively. While the pullback to 1.4070 is concerning, we will wait to see if that level is tested again in the US session. Our contention is that the 1.4070 level will hold and the market will eventually trade back above 1.4375 (28Jan high) to keep the recovery structure intact. Strategy: BUY @ 1.4385 FOR A 1.5000 OBJECTIVE, STOP @1.4040.
Fundamental Catalyst – The UK currency has been decimated over the past several months on the back of a global financial crisis and an ongoing deterioration within the local data. Sterling has been the currency of choice to play long USD positions through, bearing the brunt off the global macro slowdown. Much of the depreciation in the currency has also been exacerbated by a divergence in monetary policy between the Bank of England and the ECB in which the UK central bank has been vastly more accommodative. Eurozone data had not been showing the kind of weakness as was seen in the UK which translated into a more balanced ECB policy. However, we are starting to see a shift in the fundamentals, with the Eurozone deterioration starting to gain more traction. This should ultimately take some pressure off of Cable as traders begin to liquidate long EUR/GBP positions. Cable has also been very sensitive to risk aversion and therefore any sense of stability within the financial markets is sure to benefit the beleaguered currency.
Fundamental Catalyst – The UK currency has been decimated over the past several months on the back of a global financial crisis and an ongoing deterioration within the local data. Sterling has been the currency of choice to play long USD positions through, bearing the brunt off the global macro slowdown. Much of the depreciation in the currency has also been exacerbated by a divergence in monetary policy between the Bank of England and the ECB in which the UK central bank has been vastly more accommodative. Eurozone data had not been showing the kind of weakness as was seen in the UK which translated into a more balanced ECB policy. However, we are starting to see a shift in the fundamentals, with the Eurozone deterioration starting to gain more traction. This should ultimately take some pressure off of Cable as traders begin to liquidate long EUR/GBP positions. Cable has also been very sensitive to risk aversion and therefore any sense of stability within the financial markets is sure to benefit the beleaguered currency.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
To contact the author of this report, e-mail jskruger@fxcm.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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