Cable running out of steam

The cable has seen some strong moves recently but a double top forming at some solid resistance could put an end to the run. A reversal could see the pair head back into the liquidity zone between the 1.475-1.49 levels.

The pound has seen a strong surge over the last 24 hours thanks to slightly hawkish minutes from the Bank of England’s Monetary Policy Committee meeting. The minutes suggested that inflation, could dip below zero in the short term, but once it began to rise, it would rise faster than expected. This could see interest rates rise to combat inflation sooner than the market anticipates which, at this stage, is early 2016. But negative headline inflation will inevitably lead to a weaker cable.

This current bullish run looks to be running out of steam as a double top forms at the resistance at the 1.5029 mark. This level has been a point of interest for the cable on a number of occasions so it’s no surprise to see it act as resistance now. If we do see a push through this level, watch for the 100 day MA to act as dynamic resistance. This will likely hold the price up, but if it breaks it will be a good signal that the bullish run is going to continue.

But for now we will look to the current double top as a signal that a reversal is potentially on the cards. The Stochastic Oscillator has pushed up into oversold territory which adds weight to the argument for a reversal. Watch for the 20 EMA to act as dynamic support for a movement back down and the liquidity zone between 1.4750 and 1.4900. This is an area that has seen plenty of volatility leading to choppy price action and that is bad news for everyone’s stop losses.

Fixed support will be found at 1.4968, 1.4843, 1.4735 and the recent lows at 1.4600. Likewise, fixed resistance is found at the current level of 1.5029, 1.5146 and 1.5270.