The Cable has remained largely depressed over the past few weeks as the bears attack the currency on mass. However, the recent sharp falls have seen the appearance of a pin bar upon the weekly charts that has the potential to cause a retracement in the coming days.
The venerable Cable has largely been in decline since May of last year when the divergent monetary policies of the respective central banks became closely watched by the market. Subsequently, the pair has sharply followed a declining trend that has seen it fall from around 1.60 to its current level at 1.4228. However, the appearance of a pin bar on the weekly charts is a positive signal that could be indicating a retracement afoot.
From a technical point of view, the pair continues to be depressed by a strongly bearish trend line that is capping its upward gains. The moving averages are also depressed and trending lower but the RSI oscillator has finally reached oversold territory on the weekly timeframe. Given the Cable’s current price location, along with the pin bar and RSI entering oversold, a retracement could be a real possibility.
However, the current fundamental state of the UK economy is a risk factor for any medium term play on the Cable. Given the recent falls in the UK industrial production indicator, along with a lacklustre inflation outlook, there is a risk of further easing from the BoE. Subsequently, any change to UK interest rates would be largely bearish for the pair and seek to continue the current down trend.
Ultimately, these types are trades are more long term in nature and difficult to predict. However, the appearance of the pin bar in a key location of support is a prime indicator that there is a revaluation afoot. Subsequently, look for a confirmed bullish engulfing candle before considering an entry and watch out for any fundamental events.
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