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.

We are seeing some bullish signals from GBP/USD and will be looking for an opportunity to establish a long position.

It looks like at this point that the market has accepted David Cameron’s budget at face value and has pushed worries about the nation’s fiscal situation to the sidelines.

We have broken above the  100-day moving average, the key 61.8% retracement level and above resistance in the 1.50 zone. It is impossible to ignore such bullish price action. We are now in an uptending channel above the 14-day moving average (red).

We are seeing some signs of consolidation. Today’s price action has been quiet as we trade in a 55-pip range. We see scope for a slide to the 100-day moving average (blue) but would view this as a buying opportunity for an eventual rally toward 1.5524.

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 election drama in the UK ramped up after Thursday’s debate among the leaders of the three main parties. the stakes have been raised for the May 6 election after a strong performance in last week’s debate propelled the third place Liberal Democrats into contention. a UK Sunday Times poll showed Liberal Democrats’ support rising 11 percentage points to 29%, the Conservatives down 7 pp to 33% and Labour down 2 pp to 30%.

The market attempted to guage the impact of the poll on Friday but a rally and later selloff were both wiped away, leaving an indecisive doji star pattern. Such a pattern is a precursor to volatiliy and can signify a reversal. The latest polls confirmed the worst fears with the Liberal Democrats surging and a hung Parliament growing much more likely.

The gap lower at the open today completes a bearish evening star pattern that will be confirmed by a close below 1.5378. In fact, the 1.5378 level will be critical as it also represents the mid-March high. Uptrend support lies just below that level at 1.5363.

A close below those levels would be bearish, targetting 1.5150. It may even lead to a re-test of the 1.4787 lows.

With the three parties in a virtual dead heat, the GBP has slumped. The market will be trying to judge if the move to the Liberal Democrats has staying power or is just a passing fancy.

The coast is clear for GBP/USD to continue higher as fundamental and technical indicators point to an extension of the recent rally.

Fundamentally, it’s looking increasingly likely that the Conservatives will secure a majority victory in the May 6 election. Today’s poll of swing electoral districts showed the Conservatives with a convincing lead. Moreover, the market seems to be shifting its gaze away from the debt problems in the UK in light of data showing economic improvement, especially in exports.

Technically, this has all been reflected in the price action of GBP/USD.

The pattern is very similar to EUR/USD but is showing more conviction to the upside. There is a double-bottom at 1.4787 from March 1 and March 27. The neckline at 1.5378 was broken last week and we have gone back and retested it successfully. The measured target of the double bottom is 1.5969, which corresponds nicely with the 200-day moving average (red). Before that level can be reached, there are several technical hurdles to overcome. The most formidable will be the late February top at 1.5815.

Overall, we think this trade sets up nicely and we also like the fact that there has been good volatiliy in this pair and that looks set to continue.

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.

On March 9 we entered a long GBP/USD trade (see below) at 1.4967 with a stop at 1.4850 and a target at 1.55.

The trade is looking very good right now as the market dipped as low as 1.4875 shortly after the trade was entered but has rallied to 1.5382 in trading today.

We were looking for a rebound from deeply oversold levels to the mid-Bollinger Band, which was around 1.55. Naturally, the Bollinger Bands have come down and we have acheieved the target in that sense.

We have been keeping a close eye on the chart and also see that we are within the 05% to 61.8% ‘box’ retracement level of the drop from mid-February to March 1. The top of the ‘box’ is at 1.5422 — slightly below our target.

Still, we aren’t eager to take our profits. The GBP has been pounded down and it’s clear that the bleeding has subsided. The question now is: is this a rebound, or a sideways move?

Experience tells us that a sharp sell-off rarely ends in a complete reversal. Generally, the market moves sideways before changing direction. Technically, however, we have yet to see a sell signal.

It’s a tough call but we think that after two strong days to the upside, the balance of risks points to some consolidation. Since we are close to the day’s highs; we’re going to book the profit. We will be looking for ways to get back into GBP/USD, potentially buying at 1.5230.

Trade closed: +512 pips in GBP/USD.

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.

A reversal the the USD on Tuesday has generated an pattern in GBP/USD that targets 1.57 but could be setting the stage for a larger breakdown.

 The pair has slipped below key support at 1.5920 after getting rejected by the 200-day moving average at 1.6050.

The pair is currently at 1.5913 and if we see it close below 1.5920, it will be a definite sell signal with a target of 1.5703.

We talked about the importance of the 200-dma in GBP/USD in a post last week, noting that the GBP fell 6000 pips the last time it fell through the mark. We targetted 1.58 and now that is just 70 pips away.

On the hourly chart we have posted, you can also see a messy head-and-shoulders pattern, that has been mostly resolved but points to 1.6070 as a key short-term stop.

At the moment, it seems like the momentum is aligned for a test of 1.57. Taking a look at the daily chart affirms that conviction.

The first thing we notice when looking at the daily chart is the period of indecision over the past week. We see three clear doji stars followed by a hesitant candle upwards culminating in a clear rejection of the 200-dma and a massive 120 pip reversal.

We have often talked about our enthusiasm for doji star patterns and how they so often preceed a big, lasting move. With this chart we need only to look back two weeks. From Dec 9 – 16 we saw similar doji star patterns followed by a bounce to the 100-day moving average that was shot down in quick 400 pip fall.

The potential for something similar certainly exists here. the consolidation of the doji stars cleared out oversold conditions and foreshadows weakness.

The difference this time is that there is major support at 1.5708, which was the low on Oct. 13 and also the lowest since May. A close below this level would be a major blow for GBP and would target at least 1.50 with the potential for a retest of the 1.35 lows.