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Trade Desk Thoughts:
The moves higher on Friday set the pair into long mode, as well as pushing it straight into huge resistance at 1.6750, an area that was firmly rejected in trade in the last week of June. The U.K. economic scene has nothing to offer to back these moves, it looks to be a case of overall Usd weakness, rather than pound strength.
The pound held steady against all other cross pairs, and lost dramatic ground in comparison in the GBP/CHF pair. This indicates that the reversal may be far more easily achieved than the break-out, and we may be reporting a mixed trend, rather than the newly formed long read from Friday, within the first sessions of this week.
The calendar is loaded with U.K. data, including the Bank of England rate decision on Thursday, and pressure will now be on to print positive reads to back the newly found valuations from Friday's parabolic moves higher. Looking back to the failure to hold these levels on Jun 26 09, and the subsequent reversal that shaved 800 pips in a week or so of trade, we can see very little difference in the technical and fundamental set-up that justifies calling for a break-out that can easily hold now.
Things just do not look that different from where they were, and as such, working with the law of probability that technical traders use, and looking for the same set-up to replicate the previous reaction; there is as much chance of a drop, as there is a break-out, especially on a week of very important economic data.
The economic regions, U.K. and U.S., are not too far apart from each other. Both are suffering housing and employment issues, both are deep in a quantative easing program, both are holding equivalent amounts of each other's government debt, and both are looking to the service sector to move forward, lead by a consumer willing to take on more debt. The picture looks just as cloudy in either region, and all the more reason to question whether the break to new ground above 1.6750 can happen, when looking back four weeks, it failed with the same set-up in place.
The calendar will dominate this week's momentum.
Long Instigators:
If the pair can hold the 1.6600 area as support on a pull-back, the long side could be considered be bought as each region open at 20:00 EDT, 02:00 EDT, and 07:00 EDT. Positive equity trade may then allow a test of the 1.6750 area that it is currently trading at. From there it is all about oil and equity markets moving higher. Breaking through 1.6750 and holding this week may be a lot to ask.
Short Instigators:
A test of 1.6650 will attract the offers lower, and may be an important swing point to work trades off. Testing 1.6450 at some stage this week may spark a move lower if global equity markets are not holding the green.
Fundamentals:
A large number of U.K. economic releases are released this week, including the manufacturing, services, and construction PMIs, producer prices, industrial production, car sales, the NIESR monthly GDP growth estimate, shop prices, and the Nationwide consumer confidence index.
Calendar:
Monday brings 04:30 EDT Manufacturing PMI. Expected 47.7. Previous 47.0.