The British pound has extended its two day advance and now looks poised to test pivot resistance at 1.5428. Indeed, the single currency is rallying today on the back of strength in the euro as Spain announced that it sold the full 3 billion euros ($3.8 billion) it planned to issue. Today’s auction also trails Greece’s sale of 1.63 billion euros of 6 month notes earlier this week, which looks to have fueled investor optimism. However, from my point of view, the recent advance is likely to stall as the ECB stress tests measures may not disclose the full scope of the European banking system, which is needed to sustain confidence in the financial system. At the same time, there are rumors that ECB president Jean Claude Trichet will meet with banks 2 days prior to when the measures are scheduled to go public. This adds some concern for the validity in the tests as the meeting is expected to discuss the results and consequences of releasing the tests. All in all, if the banks stress tests are not credible, this will not only weigh on the euro, but will also cause selling pressure in the British pound. I will look to go short the GBP/USD at 1.550, with a soft target of 1.5375, and a break below exposing 1.5270. I will update my status on the position as well as the stop in the coming days if my entry position is indeed triggered.
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