Ross Woodfield
Blackwell Global Investments Limited
The Pound Sterling had been in a state of free fall with seven consecutive weeks of declines. It now appears to have found an area of support and an ugly triple bottom could point to a reversal.
Last week saw some positive news for the UK economyin the form of consumer confidence, which rose from -2.0 to 1.0, well ahead of estimates of -1.0. This was after the CBI Realised Sales (a measure of retail sales) also showed improvement from 21 to 37, ahead of market expectations of 27. The week rounded off with house price data that showed prices rose from 0.1% to 0.8% m/m.
The good results were a welcome boost to the GBP which has taken a beating as speculation of an interest rate rise wanes. The market may have been getting ahead of itself with some forecasting interest rate rises to begin before the end of the year. That always looked ambitious, however, the majority of the market expected the UK to begin before the US. This too now looks ambitious as the Bank of England downgraded their wage inflation expectation, leading to the recent bearish trend.
The week ahead will see all three PMIs reported (manufacturing, construction and services) along with the official bank rate, which is expected to remain at 0.50%. Expect to see plenty of volatility from the Pound as the PMI figures are all expected to fall, however, any signs of improvement will encourage the bulls.
Technical patterns show some very solid resistance at 1.6536 holding up what was looking like a very bearish slide in the Pound. Further support is found at 1.6462 and 1.6358. The neck like of what is shaping up to be an ugly triple top is found just above the 1.6600 level and a breakout of this, combined with a break of the bearish channel will be a very good entry signal for a long position. Resistance for a bullish movement can be found at 1.6656, 1.6763 and 1.6842 with 1.6763 looking firm.
The bearish channel could be put under pressure soon and any positive results could lead to a breakout and a reversal of fortunes for the Pound.
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