CABLE SHORT TO 1.30: Fundamental and Technical
Updated
GBPUSD reached 1.326 today off the back of a strong manufacturing PMI (53.3 vs 49.0 consensus).
Fundamentally: Sterling should remain pressured, as manufacturing has a limited contribution to UK GDP, and the uncertainty of Brexit still looms. As long as this uncertainty remains, BoE should still look to cut rates and maintain QE.
Technically: There is strong resistance at 1.325-1.327, from which Cable was rejected on the 24th and 26th of August.
Furthermore, end of month (August) flows were unusually positive for Cable, suggesting that there may be room for further downside in September.
Risks: the major risk for Cable shorts at present is the UK Construction PMI and US NFP on Friday. However, an above-expectations NFP report would set the stage for continued dollar strength heading into the FOMC decision on September 21.
Also, a break of 1.328, sustained through 1.33, may make a short trade on Cable invalid - at which point we would look to hedge our short position until 1.35.
Fundamentally: Sterling should remain pressured, as manufacturing has a limited contribution to UK GDP, and the uncertainty of Brexit still looms. As long as this uncertainty remains, BoE should still look to cut rates and maintain QE.
Technically: There is strong resistance at 1.325-1.327, from which Cable was rejected on the 24th and 26th of August.
Furthermore, end of month (August) flows were unusually positive for Cable, suggesting that there may be room for further downside in September.
Risks: the major risk for Cable shorts at present is the UK Construction PMI and US NFP on Friday. However, an above-expectations NFP report would set the stage for continued dollar strength heading into the FOMC decision on September 21.
Also, a break of 1.328, sustained through 1.33, may make a short trade on Cable invalid - at which point we would look to hedge our short position until 1.35.
Note
The 1H chart now shows divergence at 1.326. I am more confident with my short position.Note
NFP was a disappointment, and UK construction PMI beat expectations albeit still in contraction territory. A risk-averse trader may now look to close Cable shorts and play the upside.A risk taker (me!) would look to add to shorts at 1.335, as the Fed should still hike in December and BoE will continue to ease. There is divergence on the 1H chart which suggests in the short-term, upside momentum in GBPUSD is slowing.
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