fmfx:
Cable At Multi-Month Lows
The GBP/USD broke out today to new multi-month lows below the 1.5921 support at 1.5864. Price, then, bounced and retraced to as high as 1.5936 capped by the 38.2% Fibonacci level at 1.5941. Now into the New York close, cable has resumed its downward momentum with price back below the 1.5900 whole number.
We mentioned at the start of the week on Sunday 3 important things:
- that as long as 1.5920 support held expect the GBP/USD to rally back towards 1.6100. Cable made a decent attempt with today’s high at 1.6066 when price made a low yesterday above support at 1.5931.
- that it would be non-scheduled announcements that would move the markets this week. JP Morgan’s announcement stopped the GBP/USD correction rally dead in its track spurring the reversal back in the direction of the LT down trend. In addition, worries about credit quality out of Abu Dubai fueled risk aversion thus keeping the pressure on the currency pair.
- that if support at 1.5920 was broken, then retracement was over and expect a breakout to the downside. Cable broke out 54 pips before finding support at the lows with little regard for the 1.5920 support level. Looking at the above hourly charts, the GBP/USD slid 148 pips in 2 hours.
With price staying and closing below 1.5920, now previous support, cable now targets the 1.5801 ST on its way to completing the quarter to 1.5750.
A close below the 1.5900 whole number would further confirm the weakness of the GBP/USD currency pair. With fundamentals and technicals aligned right now and price remaining 75 pips (and more) below the 1.6000 large quarter point, I am off cable short suspension! But I did take advantage of the bearish developments in the GBP/USD without trading it. Rather, I traded the EUR/GBP and now manage a long position started last week, booking 215 pips and adding on dips. With this position, I can stay away from the USD until 2010.
I do still see more weakness in cable. And I find it very interesting that the USD is now benefiting from BOTH risk aversion AND positive US fundamentals. However, trade what you see, not what I think.
