A big week for the Cable

It is a big week for the Cable with a fair bit of high impact data that might be able to shake the GBP/USD out of its recent 1.30 – 1.35 trading channel. With this in mind I thought I’d separate this pair out again from my weekly analysis.

If you are wondering why the GBP/USD is referred to as the Cable then have a read of the information in this link.

There is a lot of GBP data this week to monitor with GBP CPI, PPI, RPI and HPI data on Tuesday, Employment data on Wednesday and with Retail Sales and the BoE Interest Rate update on Thursday. One, or all, of these data items might be enough to shake the Cable out of its 11-week trading range since price collapsed after the June Brexit result. The chart below shows how price has essentially been trading for the last 11 weeks within a channel bound by the 1.35 level above and 1.30 level below. The question is, will all that change this week?

Re-cap: The Cable has been trading under a bearish trend line for the last 8 years, since peaking at 2.1161 in Nov of 2007 (see monthly chart below). Price plunged during the following 2008 year with the Global Financial Crisis and bottomed near the whole-number region of 1.35. Price action chopped higher after that though and made another peak at 1.7191 in July 2014 but has traded lower since then. In fact, the recent Brexit vote result triggered further lows for the Cable down to the 1.28 whole-number region. This price action has resulted in another bear trend line, of 2 year duration, forming up since that 2014 peak:

Post Brexit: Reading post-Brexit analysis would have many traders believe the British economy would suffer significantly from withdrawal from EU and that the GBP/USD would continue to march lower. However, recent GBP data has not supported this ‘doom and gloom’ analysis with a number of data points surprising to the upside. Over the last few weeks GBP Manufacturing PMI, Services PMI, Industrial Production and Construction PMI data have all come in better than expected and this has, no doubt, helped the GBP/USD to reclaim and hold above the key 1.30 level. For the time being at least!

Last week: The Cable continued with its move up from 1.30 to start last week but eventually ran back up into the key 1.35 level and a TC signal, that had triggered earlier in the week, closed off for a loss. I had warned that this 1.35 level, which was the LOW reached during the GFC, might be difficult for the Cable to master and this proved to be the case, that, and some US$ strength that returned during the week. However, whilst price retreated from the psychological 1.35 S/R level it did manage to hold above a recent support trend line and this price action is forming up a 4hr chart triangle pattern giving us trend lines to watch for any momentum based breakout: up or down!

The weekly candle: has a bearish-reversal look to it though and so I’ll be watching this support trend line next week for any make or break activity. Any break and hold below this 4hr chart support trend line will have me looking to the various lower fib levels for any reaction but a test of the key 1.30 level could be a possibility here if bearish momentum picks up.

The current monthly candle: However, it is also worth keeping in mind that the larger time frame monthly chart shows price action currently forming up with a bullish-reversal ‘Inverted Hammer’ supporting case that the Cable is trying to base here off this 1.30 low. The battle lines are clearly drawn between the 1.35 and 1.30 levels here:

Price is trading in the top edge of the 4hr Cloud but in the bottom region of the daily Cloud. The daily Cloud is rather broad as well meaning that there might be a lot of resistance to any bullish continuation effort here:

The weekly candle closed as a bearish-reversal ‘Shooting Star’ under this 1.35 S/R level so this may be a warning of a deeper pullback here, despite the current shaping up of the monthly candle.

The following S/R levels remain in focus for me as I watch to see how the Cable might eventually breakout from the 1.30 – 1.35 range. These levels are derived from the charts copied below:

Bullish targets: above current price:

The 1.35 S/R level and GFC low region.
The 1.40 S/R level.
The 1.45/6 level which is near the weekly chart’s 38.2% fib and the 2-year bear trend line.
The 1.50 S/R level which is near the weekly chart’s 50% fib.
The 1.55 S/R level which is near the weekly chart’s 61.8% fib and the 8-year bear trend line.

Bearish targets: below current price:

The 1.30 S/R level.
The 1.28 level which is a recent ‘Double Bottom’.
The 1.20 region is previous S/R from 1984/5.
The 1.05 region which is near the monthly chart’s 100% fib.

There is a lot of GBP data this week to monitor with CPI, PPI, RPI and HPI data on Tuesday, Employment data on Wednesday and then Retail Sales and an Interest Rate update on Thursday. There is also a lot of US$ data to impact here next week as well so keep an eye on those data items too.