Sage Advice for Trading the Cable
It’s been all downhill for the cable in 2016. As one of the world’s most popular currency pairs, there is little to celebrate with the GBP/USD. Prior to the Brexit referendum on June 23, 2016, the cable was trading around 1.47 to the greenback. It has plunged spectacularly in the 5 months since then. Recently, the GBP hit a 2-month high of 1.2774 against the greenback, but Friday’s performance marked an about turn for the currency pair. The current price of the GBP/USD pair is 1.2558. It is down 0.11% or $0.0013. The exchange rate over the past 5 trading days declined by 0.69%. Over the past 1 month, the GBP/USD currency pair is up 1.32%.
At the beginning of December 2016, analysts were expecting a soft Brexit. This would mean that the UK would continue to have access to the 27-member EU. Recently we saw the BBA (British Bankers Association) petitioning Prime Minister Teresa May on setting up an interim agreement to ensure that the City of London remains the financial epicenter of Europe. The agreement would effectively secure trade, financing, and partnerships with EU clients – despite the disruptive effect of a Brexit.
Access to the Single Market Remains a Priority
The EU single market remains priority #1 for UK companies. In recent days, a slew of lukewarm macroeconomic data releases has made its way to the markets. The UK appears to be less healthy than was previously thought. Weakness is evident in industrial and manufacturing production. Overall, industrial production has declined by 1.3%. The GBP held its own on Friday, refusing to be dragged lower with short selling of the sterling.
Until recently, the GBP/USD pair was holding above the 20-day moving average at 1.28, but now it remains below the 20-day MA, 40-day MA, 50-day MA and the 200-day MA. The pair has been overbought at certain times, but that appears to have subsided with plenty of horizontal trading taking place. The key support levels for the cable include 1.2525, 1.2480, and 1.2440. The key resistance levels to keep in mind are 1.2620, 1.26601, and 1.2700.
What about Other Factors Are Impacting the GBP/USD Pair?
Overall, the moving averages summary of the currency pair indicate a strong sell. This is true of 5 minutes, 15 minutes, hourly and daily moving averages. If we look at other technical indicators, the monthly readings indicate a strong sell, while the daily readings indicate a buy. In terms of stochastic indicators and MACD (Moving Average Convergence Divergence), the pair is a sell. The only short-term-moving average which indicates a buy option on the GBP/USD is the 5-day moving average. This is a buy option for simple moving averages and exponential moving averages.
One shouldn’t forget that the USD has firmed as the European Central Bank extends the duration of its quantitative easing program. The USD has made considerable gains against the EUR and the JPY since Friday and will likely continue to do so as the debt-buying program continues in earnest. The ECB will continue asset repurchases valued at €60 billion per month from April 2017 the current rate is €80 billion per month. For the week ahead, analysts foresee strong gains for the GBP/USD pair, despite the negative technical factors.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.