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 rebound in ‘risk’ trades today left some interesting patterns. Some look like they could be putting in bottoms, others look convincingly like the trend will continue. We are looking for clearer signals but in the meantime we see some charts that are flashing trading opportunities.

Cable has posted an interesting pattern over the past 10 days, bouncing in a 300-pip range. We will be watching this trade over the next few days and think a break to either side will be a good barometer of the broader risk trade.

As we can see, GBP/USD has traded in a 294 pip range since the gap lower to start the week of May 16. The gap lower co-incided with the election of a new government and we are now getting a sense of the austerity measures they plan to unveil to curb the huge UK deficit. It’s possible that announcements on that front will be what pushes this pair from its range. If the measures are too severe of too leniant, the pound will fall. Poilcymakers will need to strike a plan that’s both credible and promotes economic growth.

Technically, there are two ways to trade. The first is to buy at the bottom of the range and sell at the top. The second is to await a breakout. At the moment, we would favour selling a rally if GBP/USD reaches the top of the range and covering a portion at the bottom of the range. Playing a breakout is also an attractive strategy. The measured target of a range-trade breakout is equal to the range, so a fall to 1.3940 or a rally to 1.4822 is expected.

The euro fell below the April 9 low of 0.8706 today on growing concerns about the indebtedness of Greece, Portugal and Spain. Now, a continued to fall to the January low of 0.8601 looks likely.

There is some support at the 100-week moving average at 0.8656 but the market is clearly favouring the GBP over the EUR.

Fundamentally, there is reason to like this trade as well. The market now seems to have come to terms with a hung Parliament in the UK and past history has shown that the GBP can still rally in such a situation. Now, the focus has moved to a growing inflation problem in the UK. With the consumer price index over 3% in the UK and still showing signs of momentum it is highly likely that the BOE will raise interest rates before the ECB (or the Fed for that matter).

With the concerns continuing to mount about Greece and Portugal, the euro is in bad shape. Debt spreads rose to a record high of 522 basis points in Greece today and even a rescue package may only prove a brief respite. It seems the market is now also targetting Portugal, where spreads also hit a record high today.

Expect this pair to fall to at least 0.8400 but exit the trade if the downtrending channel is pierced on the upside.

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.

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.

We can’t remember a time, in many years of trading, that the market has been so focused on 200-day moving averages. It seems like everyone has them up on their screens. It seems to have started with the breakdown in EUR/USD to the 200-dma, the subsequent stabilization and then the second leg lower. We have also seen fascinating interactions with AUD/USD and AUD crosses and the 200-dma.

At the moment, we are looking at EUR/GBP, which is flashing some very strong technical signals.

The 200-day moving average is in red and we can see that the market has now failed twice in efforts to close above the key level. The second key point is that we have now put in a double-top at 88.41 that targets 83.60. Finally, the double-top/200dma resistace comes in right at the bottom of old support from mid-November.

It all adds up to a brilliant show of convergence that has every technical trader pounding the sell button today. We have also added the RSI to show that it’s also flashing sell signals.

We can think of some fundamental reasons to stay out of this trade but we never fight the technical trend and in this trade, it’s very clear.