Over the past couple of weeks, sterling has been the worst performing major currency by some way. Although there was a degree of kick back against this yesterday, we expect this underperformance to continue. Subsequently, today is an important session for the continuation of the near term corrective outlook on Cable. A strong positive candle posted yesterday was counter to a three week downtrend and gives another chance to sell. This trendline sits at $1.2405 today as the early move has dropped back again. However, if the bulls can rally again and post another positive candle, then it would break the three week downtrend and suggest the market is ready to pull higher once more. Momentum indicators are at an intriguing crossroads too, where they remain negatively configured on a near term basis, but With Stochastics ticking higher, this could also be a turning point for a rally. The hourly chart shows the importance of how the market responds around $1.2400 resistance (an old basis of support which capped yesterday’s recovery) will be for the near term outlook. We favour a continuation of the move lower, with another leg to test $1.2250 and potentially $1.2160 before the medium term range support kicks in. Above $1.2450 drives for recovery again.
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