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The Power of the Wave Principle

British Pound Rising Despite Negative Data

Currencies / British Pound Feb 11, 2016 - 02:33 PM GMT

By: MBM_Research


Trends in many of the financial markets have started to reverse course over the last few weeks with a few notable examples that have yet to be fully discussed.  Some of the more closely watched examples here include things like gold and oil, which have come off sharply from their recent lows.  But there are other examples that should be on the radar of UK traders, as the British Pound (GBP) is making some interesting reversals in its own right. 

The real question here is whether these short term rallies are a sign of things to come, as there is still a good distance for prices to travel before we are anywhere near the highs that were posted last summer.  Here, we will look at some of the factors involved when trading GBP/USD in the current market environment.

Chart View:  GBP/USD

Source:  FiboGroup

The chart above gives us a longer term view in the GBP/USD, which still appears to be caught in a major downtrend against the US Dollar.  But while the latest moves might seem insignificant, it should be understood that these short term rallies are coming a negative economic data is being posted for the region.

Specifically, UK manufacturing data came in well below market expectations and this dampens the interest rate outlook for the British interest rate increases this year.  But this did not cause further decreases in the valuation of the currency and when this occurs, it is generally a good indication that a trend reversal is on the wake.  If negative economic data leads to rallies in the GBP, it might make sense to start looking for levels to initiate buy positions in the GBP/USD. 

Watching Price Levels

In terms of specific price levels, the key area of resistance in the GBP/USD is now found at 1.5280 and a clear break here targets a further test several big figures higher.  This now suggests that the British Pound would be one of the strongest buys in the currency markets as there is clear scope for buying in low near the bottom of the currency’s downtrend.  

On the other side, a downside break of 1.43 would indicate that the downtrend is still in place.  So this is an area that would be used for stop loss placement from those looking to implemented long positions.  Going forward, these will be the critical levels to watch when determining where we actually are in the trend seen in the British Pound.

By MBM Research

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