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26 Feb 2014
Sterling Insight: Can the pound break higher?
FXStreet (Guatemala) - As the first of a daily article which I will be writing on Sterling, where I will be bringing you in on all of the latest economic fundamentals and technical analyses around Sterling, I thought to bring us up to speed with where we are on the pound to date and what the future might be holding in the near, medium and longer term without trying to be too one sided. I am in fact a bear on the pound fundamentally speaking, but I must be aware that markets are a great deal bigger than I am and for the most part, there are not always going to behave in a rational manner. So for today, let’s not even consider the fundamentals and simply look at ‘what it is’.
At current levels, yes, it is looking strong, albeit sliding off the 1.67 handle today while the USD is bid across the board. The pair is currently marking a low of 1.6622 on the European and US session. However, 1.67 has been a yearly resistance level to consider and has been tested 5 times since 2009. Since the financial crisis, the range in the pound has become narrow and highly predictable, with 1.67, or there about, the top of that range and at times where markets have pushed the boundaries of Sterling, we might have sunk below 1.50, but basically we have been stuck in a 17 big figure sideways range...(yawn). But currently, traders are starting to sit up at their screens, analysing charts again and are becoming cautious not to be too one sided on the offer of the range.
This recent sterling rally feels somewhat different to us all. We will remember that it wasn’t too forgone that Sterling was trading down at the July low in 2013 at $1.48 and has since gained by 13%. That is a strong move with momentum from a 2013 double bottom supported by the moving averages rather than just a bounce or counter trend. We have seen the markets apatite to test the ceiling of this long-term resistance as the pound managed a score of 1.6824 on the 17th of this month, which was the highest level since 2009. A good opportunity to lock in some profits and since we have reshaped into a range of 1.6580’s / 1.6700’s. Looking back, should we see a convincing break of 1.68 and onto 1.70, and then there really isn’t very much in the way before we can approach on the 1.90’s again. In the short term however, we better not get too focused on a break of 1.7000. I feel there will need to be something very fundamental to spark a full on bull rally through that level. One of the counter balances to speculating on that is of course how a stronger pound would manifest itself in lower inflation numbers - which means there will be less pressure on the BoE to raise rates.
At current levels, yes, it is looking strong, albeit sliding off the 1.67 handle today while the USD is bid across the board. The pair is currently marking a low of 1.6622 on the European and US session. However, 1.67 has been a yearly resistance level to consider and has been tested 5 times since 2009. Since the financial crisis, the range in the pound has become narrow and highly predictable, with 1.67, or there about, the top of that range and at times where markets have pushed the boundaries of Sterling, we might have sunk below 1.50, but basically we have been stuck in a 17 big figure sideways range...(yawn). But currently, traders are starting to sit up at their screens, analysing charts again and are becoming cautious not to be too one sided on the offer of the range.
This recent sterling rally feels somewhat different to us all. We will remember that it wasn’t too forgone that Sterling was trading down at the July low in 2013 at $1.48 and has since gained by 13%. That is a strong move with momentum from a 2013 double bottom supported by the moving averages rather than just a bounce or counter trend. We have seen the markets apatite to test the ceiling of this long-term resistance as the pound managed a score of 1.6824 on the 17th of this month, which was the highest level since 2009. A good opportunity to lock in some profits and since we have reshaped into a range of 1.6580’s / 1.6700’s. Looking back, should we see a convincing break of 1.68 and onto 1.70, and then there really isn’t very much in the way before we can approach on the 1.90’s again. In the short term however, we better not get too focused on a break of 1.7000. I feel there will need to be something very fundamental to spark a full on bull rally through that level. One of the counter balances to speculating on that is of course how a stronger pound would manifest itself in lower inflation numbers - which means there will be less pressure on the BoE to raise rates.