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Is The Cable Set For A Reversal?

Is The Cable Set For A Reversal?

The cable was back on the receiving end last week as the supports the market was watching finally gave way. The data this week has led to USD depreciation that is supporting the pair ahead of some big data events. Now the question is will it continue?

It was a slow data week from the UK which was not helped by light volumes out of the US with Thanksgiving being celebrated. UK GDP remained firm at 0.5% q/q, however house prices look to be cooling off slightly. A lift in US core durable goods orders and an improvement in US GDP was enough to drive USD strength. The cable was beaten down to the recent 8 month low which was extended before the pair rejected higher.

Weak USD sentiment this week has seen the pair gain as resistance turns to support. US manufacturing PMI was a big miss yesterday as it sunk to its lowest level in two and a half years at 48.6, well short of the 50.5 expected. UK manufacturing PMI was also disappointing at 52.7 vs 53.8 exp, but the Bank of England’s Financial Stress Test was released which buoyed the pair. BoE Governor Carney said the countries 8 major banks are in a better shape than before the GFC which will give the market confidence.

The rest of the week ahead will be busy with both BoE Governor Carney and Fed Chairwoman Yellen speaking. The UK services PMI, the most important PMI for the UK economy, is also due and is expected to tick higher. The week is rounded out by the US Nonfarm Payrolls, which are expected to return a solid 200k. The US labour market is certainly robust at the moment and the US shopping season will have added plenty of part time jobs to the figures, so it will pay to dig a little deeper into them to get the full picture.

GBP/USD Daily Chart

Looking at technicals shows the level of support the cable recently rejected off. The push through to a fresh 8 month low and subsequent rejection is a sign the bulls have defended the position well and are supporting the pair. The RSI is showing pergence with a higher low versus the lower low in the price, which is a bullish signal.

There is a reverse head and shoulders pattern forming on the shorter timeframes which could see cause the pair to climb. Support is found at the current level of 1.5026, with further support at 1.4946 and 1.4833. Resistance is found at 1.5117, 1.5179 and 1.5240 with the bearish trend acting as dynamic resistance if the pair pushes that high.

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