The Cable has finally found bottom on our 2nd tier uptrend line, logging encouraging movements to the topside as the EUR/GBP pulls back. Despite mixed economic data, investors are choosing to run with the better than expected GDP data from both Britain and the U. S. As we anticipated, the flush of British data is appeasing Cable investors by taking their minds off of the BOE’s recent injection of liquidity into Britain’s QE package. The fact Britain’s GDP came in a basis point better than expectations shows the BOE’s monetary shock may be more cautionary than preventative.

However, Britain’s stream of data comes with a red flag since CBI Realized Sales, Prelim Business Investment, and GfK Consumer Confidence were all weaker than analyst expectations yesterday. Hence, British consumption is still struggling to approach pre- crisis levels, and the sharp decline in business investment is certainly disconcerting. Therefore, we’re not sure how long the Pound’s resurgence will last, and the excitement surrounding an oversold Cable may fade quickly. On the other hand, the S&P futures are knocking on the door of their previous 2009 highs while gold surges well past $950/oz. Since the Cable is positively correlated with both of these investment vehicles, the currency pair should be inclined to participate with any immediate- term run to the topside in either U. S. equities or precious metals.

Technically speaking, the GBP/USD must deal with our 3rd tier downtrend line and 8/25 highs. After these technical barriers the currency pair will need to overcome its psychological 1.65 level, no easy feat. Furthermore, even if the Cable’s upward momentum should carry the currency pair beyond these resistances, we can create many more downtrend lines if need be. This is the price the Cable must pay for experiencing such an aggressive pullback over the past month. Britain’s mixed data won’t cut it, and the GBP/USD will need an impressive showing on all fronts to piece together a more meaningful rally. As for the downside, the Cable has a little more breathing room for now. The GBP/USD has 8/17 and 8/27 lows along with our 1st and 2nd tier downtrend and 1st tier uptrend lines serving as technical cushions.

Britain will keep the data train rolling next week by releasing its Halifax HPI, Manufacturing PMI, and Net Lending to Individuals on Tuesday. Additionally, we’ll receive more economic data from the U. S., Japan, China, and the EU. Least we mention there is an ECB monetary policy decision on Thursday. Hence, today’s volatility should carry over into the next trading week.

Present Price: 1.6341

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