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It was now three weeks ago that Cable finally broke out of its months-long range. After the post-Brexit ‘breakdown’ in the pair, price action meandered between relatively well-defined support and resistance for more than six months before finally breaking out. And that breakout was quite the climactic event, as prices broke-higher after Prime Minister Theresa May announced early general elections in the U.K. And while the move was largely-applauded as cogent political strategy, the simple fact of the matter is that a greater majority of Conservatives in Parliament may not garner a greater position of negotiation during Brexit discussions. So the sustainability of that move after a rather flimsy driver could be widely questioned; and as we wrote, at least a portion of the move was likely driven by short-cover after another factor of uncertainty was met with a short-heavy market.
But since then, we’ve seen price action adhere to the bullish structure, with multiple instances of support being respected above that prior range-high of 1.2775.
On Thursday, we have another Super Thursday event from the Bank of England. As we had written during the original Cable breakout on April 18th, the BoE would likely be a far more pertinent driver to a bullish move in the British Pound. After all, one of the primary reasons for the overt bearish state of the currency post-Brexit was the extreme-dovish stance from the Bank of England. The BoE was anticipating a full-scale slowdown in the British economy that, frankly, hasn’t yet happened. Is this the meeting when the BoE finally capitulates on inflation expectations? If it is, and if they do – the British Pound could fly-higher. If they don’t, we could dip back-into the prior range. Stops will be adjusted to inside of the prior range so that if price action doesn’t retain its bullish state, the trade is abandoned.
Entry @ market
Stop at 1.2734
Break-even stop move at 1.3000
Target 1: 1.3183
Target 2: 1.3302
Target 3: 1.3445
Target 4: 1.3810
Chart prepared by James Stanley
--- Written by James Stanley, Strategist for DailyFX.com
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