The pound sterling made another move higher on Tuesday as it reached as high as 1.4838 before settling a bit lower. It touched the highest since mid-May and continues a retracement phase in cable. There is now no major resistance on the hourly chart until the double-top at 1.5048.

From a fundamental perspective, we have claimant count data and retail sales data on Wednesday and Thursday but the market is entirely focused on the June 22 budget. In order to get the pound moving higher Chancellor of the Exchequer George Osborne will need to strike a balance between a credible plan to lower the deficit and something that doesn’t stifle the economy. It’s a tall task.

Technically, the daily chart clearly shows that we’re in a retracement phase but we have to point out that the RSI is beginning to look very overbought. We think the market will press into the 50.0%-61.8 % Fibonacci “box” but we are worried about the timing. If the market moves higher over the next few days it will leave the market in a severely overbought position ahead of the budget and that could lead to a big move lower if Osborne disappoints. If the news is relatively positive, there is still a great deal of resistance clustered around 1.50 and that should stall the market.

We are looking for any push above 1.49 in the days leading up to June 22 as an opportunity to establish short positions. Short-term traders, however, should look to enter into longs but cover them before the 22nd, when we’re expecting a big move.