It’s make or break time for the Cable. The British Pound is challenging the long term resistance level of 1.68 against the US Dollar. It’s not the first time Sterling has attacked this level since it’s dramatic plunge from grace in Q4 2008. This is in fact the third time that this currency pair has approached this key chart point in the past 5 years. The obvious problem with long-term intermittent attacks on a resistance level is that the more times they fail, the stronger the resistance becomes. This is the challenge being faced by Cable currently.
It is also a crucial challenge for this currency pair, as any chart technician will tell you, it is very seldom that an asset gets a fourth shot at a level without making a new low in the process. What this implies for the British Pound is that a failure to make a significant break higher over the next few days will most likely lead to a dramatic retreat from current levels, with the possibility that a price below 1.50 becomes a reality.
In all likelihood Cable’s challenge will come to a head this week. A serious challenge such as this will require a serious data catalyst to see it through. The likes of this morning’s PMI figure does not hold sufficient status, it will take monetary authority action or at least implied action in order for Sterling to gain enough momentum to ‘break through the atmosphere’. The Bank of England’s Monetary Policy Committee meeting takes place on Thursday, the Bank hasn’t changed rates or stance since early 2009 so there is no reason to think there will be any news of interest this week. A more likely scenario is that tomorrow’s key inflation report could contains a surprise element, something that would hint at truncating the time line to an inevitable rate hike later in the year.
Should the Bank of England not deliver a reason to buy Sterling the push may have to come from the US Dollar side. Cable has one last shot later this week in the form of US Non-Farm Payrolls on Friday, the consensus expectation figure is high at 150k, this is not a difficult figure to miss.
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