The cable has faced a total shellacking over the past few weeks as the market comes to grips with both a slowing global economy and a delay to UK interest rate normalisation. However, the cable might have finally turned the corner, albeit in the short term, as the currency starts to flash some encouraging signals.
Despite the strong bear trend, late January has seen a slight resurgence in the pair as it breaks out of it’s almost linear down trend. Since the 21st of January the pair appears to be gently trending north as the highs get higher and the lows become less obvious. In addition, the pair has recently broken through a major trend line that was acting as a cap and form of resistance. Subsequently, there is a real chance that we could be in the very early stages of seeing a new trend forming.
From a technical standpoint, the pair is still relatively depressed but has largely been bullish for the past four days. Disregarding the market volatility (and down candle) around the Fed’s FOMC decision, the cable has been nothing but bullish throughout this period. Further supporting this contention is the fact that the 4-hour chart shows a distinct break of the major bear trend line. MACD is also trending higher along with RSI which still remains largely neutral after a pullback.
Despite the chance of a strong retracement, the pair will still need to surmount some definite resistance at the key 1.4250 battle ground. A concerted move above this level, which would also breach the 12 and 30 EMA’s, is likely to signal a sharp run back up towards the 1.44 handle. Although there isn’t as much confluence as I would like heading in to these sort of positional trades, a breach of that level would be a definite bullish signal.
Ultimately, the cable is likely to suffer and swing somewhat until the world macro-economy works out which way it is really heading in 2016. However, the pound cannot stay depressed forever, especially considering some of the debt and confidence issues hitting US equities as I write. Subsequently, look for a long side run but keep a close watch on your risk management as the cable has been known to swing wildly and wipe positions with ease.