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Market Review:
Trading Cable- The Stallion Ride
In a daily market review with TheLFB trade team, Dan Cook, Snr Market Analyst at IG Markets reveals his thoughts on GBP/USD, Cable- The Stallion
GBP/USD – Continuing the currency pair theme of the week, we are sticking with the Cable again today. While all currency pairs are interesting in their own right, this pair, in my opinion, has been the most interesting from both a fundamental and technical perspective.
On the fundamental side, offsetting events kept this pair locked securely in the range that started on December 8. Until Wednesday that is when the FOMC released their interest rate and monetary policy statement.
While the Fed left rates unchanged which many thought would benefit Pound strength, it seems that the firm February 1st deadline of pulling back many of the Fed’s liquidity measures are what traders focused on and drove the dollar up.
After Retail Sales growth in the UK came out negative on Thursday, the Sterling slide continued and it wasn’t until late on Thursday that it could find any type of footing.
Heading into the holiday shortened week next week, there are some strong fundamentals that a trader would be well advised to be cognizant of. Out of the UK we will have Current Account figures followed by the Monetary Policy Committee Meeting Minutes on Wednesday.
In the US we will see figures for both Existing and New Homes Sales and then wrap up the week on Thursday with Core Durable Goods and Weekly Unemployment claims.
Next week the markets will most likely continue to thin out dramatically as positions are wrapped up for the year. While often this is reflected in narrow trading ranges please keep in mind that the lack of liquidity can also produce large unexpected swings or even gaps as there are fewer participants to offset any large plays.
On the technical side, as we speculated, the break out of the range did not come until Wednesday. After a brief peak over the resistance level around 1.6375 (Dec. 9 high) prior to the Fed announcement, the Pound was slammed lower breaking down through the bottom of the channel and didn’t rest until reaching the 127.2% extension of the CD leg on the daily chart (blue line on chart).
From there Sterling started to stair step its way higher following an intra-day trend-line higher. Interestingly, since I started out typing this analysis, the Dollar has regained strength, breaking the intraday trend-line and driving all the way down to the 127.2% extension level again.
It will be interesting to see if we form a double bottom pattern here, or if Pound weakness will continue through the end of the day. My thought is that with the dramatic pound weakness we have seen recently, I would rather not try to catch a falling knife and will live just as happily if I miss a long entry.