It seems that third time really is the charm. Last week Cable broke free of its 3-month long range of 1.5900 to 1.6250 and forged new multi-year highs early this week. Momentum carried the pair from below the well-established double-top in the 1.6250 area all the way up into the mid-1.6400 handle. This marked the strongest value the British Pound has achieved versus the Greenback since August of 2011 and has brought bulls out of the woodwork. While the pair has since retraced and consolidated slightly there seems to be decent support near the 1.6300 handle. Key secondary support will be at 1.6250, the initial breakout point. Which represents the floor of this new and higher trading range the pair looks to have established.
The GBPUSD looks comfortable in this new range as economic green-shoots such as encouraging trends in the labour market, inflation stabilising in the 2% handle, and constructive output gains make the Bank of England (BoE) the odds-on favourite to be the first developed country central bank to increase interest rates. Despite governor Mark Carney again cautioning that forward guidance was a threshold, not a trigger at this week’s BoE policy announcement the British Pound is trading with an optimistic tone. 2013 has seen the Sterling carve out fresh multi-year highs against many of its major counterparts; most notably high beta currencies like the Australian and Canadian Dollars, the mighty Greenback, the Japanese Yen, and the Norwegian Kroner.
Furthermore, in the last few weeks the GBP accelerated towards or breached its strongest values in a year against its major European peers, particularly the Euro. GBPEUR temporarily broke through resistance at 1.2000 this week with stop-loss activity helping the pair to test the waters at 1.2100. However a lack of details and conviction regarding possibility extra-ordinary easing measures at Thursday’s European Central Bank (ECB) policy announcement put the Euro on the offensive and turned the pair back. The sentiment stemming from the ECB has helped push the EURUSD higher also, bringing it to less than 2 big-figures away from the multi-year high in the low 1.3800 area. Which presents those with Euros to sell the opportunity to achieve favorable rates of execution.
Next week the data calendar is sparse for the UK, the only top tier data being Tuesday’s monthly Manufacturing Production result. This means that for the most part the Sterling will take its cue from broader market sentiment. Key things to watch for are support at 1.6250 in Cable and 1.2000 resistance in GBPEUR. Next week is similarly quiet for the Euro on the data from, with German Industrial Production representing the only meaningful data being released. So the common currency, like the Sterling, will be taking direction from activity outside its borders. With sentiment currently favoring the Euro key resistance is up at the multi-high in the low 1.3800 area, while support lies near 1.3600, where the pair spent time gathering its thoughts earlier this week.