This was one hell of a week for the British Pound. Different forces moved it up and down. Here’s a summary of this week’s events. What can we learn for next week?
The British Pound got some expected and unexpected news this week. I’ve covered the event in my post Will Retail Sales and GDP Send the Pound Higher?
I’ve marked the 1.5370 as a resistance line that held last week, and I’ve noted four key events: CPI, MPC Meeting Minutes, Retail Sales and Revised GDP.
On Monday, resistance held strong and cable was stuck at 1.53050. On Tuesday, GBP/USD broke the resistance line, and went higher, to 1.55. This came despite weak CPI figures. Britain isn’t experiencing inflation. The anti-dollar sentiment was too strong.
Next, the Pound traded in a narrow range. Wednesday’s MPC Meeting Minutes were shrugged by GBP/USD. The next push forward came from the other side of the Atlantic: Timothy Geithner’s speech sent the dollar down, and the Pound up. During Wednesday afternoon, cable went up and up, and flirted with 1.58.
Thursday was very dramatic for GBP/USD: Retail Sales were better than expected, rising by 0.9%. This should have sent the Pound higher. But it plunged by 250 pips!
How did this happen?
First, the calculation of Retail Sales in Britain underwent a serious change. The figures of previous months were also revised. With a new calculation method, traders were confused by the meaning of this figure.
Second, at the same time (around 8:30 GMT), Standard and Poors (S&P) downgraded Britain’s credit rating to negative. Negative rating is negative for the Poumd. This is what sent it down.
But look at the title: Rollercoaster. Indeed, this fall didn’t last long. Britain’s rating downgrade ignited fears of a similar move in the US. Also the pessimistic forecast by the Federal Reserve (FOMC Meeting Minutes) was bad news for the dollar. The greenback fell across the board and the Pound also gained.
GBP/USD made a steady comeback, and by the late hours of Thursday, it went above the 1.58, touching 1.59.
On Friday, Revised GDP came out exactly as expected, showing a contraction of 1.9% in the first quarter of 2009. During this release, GBP/USD made another round, fell to 1.5770 before climbing back up.
In the late hours of Friday, cable pushed a little bit higher, and is now trading at 1.5917.
Lesson for next week
After breaking so many resistance levels, the next major resistance is at 1.67, far far away. That was the peak in October 30th. But everything is possible in forex trading, especially during these wild times. So, GBP/USD could strive towards that goal, or stop to rest.
This week showed us that the unexpected won the expected. Credit downgrades are possible everywhere, and their magnitude is huge.
After preparing the weekly outlook for next week, I’ll write an additional post dedicated to the Pound. This week was extremely interesting in her majesty’s currency. It builds up expectations for the next week…Get the 5 most predictable currency pairs