Cable ran into resistance today at Friday’s high and then immediately turned lower, putting in a double-top on the short-term charts.

Technically, this is bearish but most of the downside has already occurred. GBP/USD is in a medium-term uptrend within a channel. We see the channel as the dominant feature on the chart with the double-top as a secondary feature.

In the short-term we expect to see a continued slide in the pair but expect uptrend support to hold. We think that will provide an excellent buying opportunity for an eventual move to 1.55.

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.

The pound sterling started the week off strong by rallying to a six-week high of 1.5489 but it has been unable to hold its gains and has faded to 1.5368.

The double-bottom at 1.4787 followed by today’s breakout certainly appears bullish but we are cautious of the potential for a reversal in light of the quick reversal today. One thing the bullish side has on its case is the low volume implied by the stock market. There was hardly any volume in stocks today, and if the same is inferred in forex, perhaps the reversal is less important.

The takeaway is that price action is bullish for cable but there should be some short-term caution. The double bottom targets 1.60 but perhaps the 50% fibonacci retracement at 1.5630 or the 61.8% target at 1.5820 are more realistic targets.

GBP/USD is back below 1.50 today after Fitch sais the country’s sovereign credit profile has deteriorated and that stronger fiscal adjustments are needed among AAA nations with urgency in UK, Spain and France.

The decline was further compounded by a disappointing trade balance figure and a fall in the RICS house price balance to +17% from +30%.

Aside from these day-to-day factors, the big decline in cable over the past three months has had a lot to do with the political situation. The market is pricing in a hung UK parliament following the spring election. The sentiment is that gridlock will lead to more spending and that no consensus for deficit cutting will emerge.

We are beginning to see this move as overdone. Democracy will continue to function in the UK and the deficit will be reigned in long before there is a sovereign crisis. In the meantine, we are down about 2000 pips from the November highs.

 In January we had a bounce to relieve oversold conditions and the support at 1.4787 could be setting up a similar move. In fact, we aren’t even expecting a retest of 1.4787 and will be putting our stops at 1.4850.

A reasonable target for a bounce in GBP/USD is the mid-Bollinger, around 1.55.

The pound sterling was crushed today after polls revealed a neck-and-neck election race. The UK needs to call an election by June and the market sentiment is that without a clear winner, there will not be the political will to cut the growing deficit.

The market absolutely pounced on this poll and used it to lay a major beating on GBP/USD. After the pair breached 1.5000 that set off a round of stop losses into the 1.47s. It talked rebounded but the gains were capped at just above 1.5000. We expect that stop orders are building above 1.5000 and that they will be punched out on a short squeeze toward 1.5200. Use that move to establish short positions.

Looking at the daily chart, we see 1.44 as the most likely target for cable but if worries about sovereign credit risk continue to mount, we can’t rule out a test of 1.37.

GBP/USD

Over the past several days we saw the cable and the USD trade in a range and continue with that trend. However today the cable broke the resistance line at 1.6600 and it appears to be heading in an uptrend in a long term view. Right now is a great time to keep your eyes and ears open on this pair. Based on reviewing the daily chart, you will be able to view where the next resistance and support lines lay for this pair over the next few days.

Today we saw a spectacular move occur in the market with this pair at 11:00 GMT.  From the fundamental point of view we saw that Monetary Policy Committee Rate Statement speech have an enormous impact on the market and following this announcement  this pair jumped upwards by more than 102pips.

When we went in with a position of buying the GBP and selling the USD using 2 standard lots just before the announcement, we saw our profit soar to the amount of $2000.

This goes to show that even on a day when  the market is not expected to move at all – profitable trades can occur!

Resistances:1.6650 – 1.6665

Supports:1.6600 – 1.6465