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By Stuart McPhee

Over the last couple of months, the GBP/USD has established and traded within a trading range roughly around the key level of 1.6450, whilst moving down to support at 1.6250 and up to 1.66. Over the last couple of weeks or so, the pound has moved very strongly pushing through resistance levels at 1.6450 and more recently at 1.66. The 1.66 level has become quite significant as it had been looming large over the last month or so and about a week ago it moved through, reaching a new multi-year high close to 1.6670. Since that time, however, it has retraced strongly and moved back below the 1.66 level only to be rejected again over the last few days before falling sharply again to a one week low touching just below 1.6450. Several weeks ago, it rallied again trying to break through the 1.6450 level before dropping back to a support level at 1.6350. In late November it did well to break through the long-term resistance level at 1.6250 which had established itself as a level of significance over the last few months. This level continues to play a role in providing support. In early November, the pound bounced strongly off the support level at 1.59 to return back to above 1.6250.

Towards the end of October the GBP/USD slowly drifted lower from the strong resistance level at 1.6250 and down to a three week low just around 1.5900 which was recently passed as the pound moved down towards 1.5850 only a week ago. For the week or so before that the pound moved well from the key level at 1.60 back up to the significant level at 1.6250, only again for this level to stand tall and fend off buyers for several days. Throughout September, the pound rallied well and surged higher to move back up strongly through numerous levels which was punctuated by a push through to its highest level for the year just above 1.6250 several weeks ago. In the first week of October, the pound was easing back towards 1.60 and 1.59 where it established a narrow trading range between before surging back to 1.6250 again.

Back in the middle of August, the pound surged higher to through the resistance level at 1.56 to a then two month high around 1.5650, before spending the next few days consolidating and trading within a narrow range around 1.5650, receiving support from the key 1.56 level. A couple of months ago the resistance level at 1.54 was proving to be quite solid, and once it broke through the pound surged higher to a new seven week high near 1.56 in a solid 48 hour period run. In the week leading up to this, the pound had recovered strongly and returned to the previous resistance level at 1.54 after the week earlier undoing some of its good work and falling away sharply from the resistance level at 1.54 back down to around 1.5150 and a two week low. A few weeks ago, the 1.54 resistance level stood firm and the pound fell away heavily, however, the 1.51 support level proved decisive and helped the pound rally strongly.

The UK has recorded its best annual growth since the credit crisis hit and now looks like the strongest economic recovery in Europe. The UK economy grew by 1.9 percent overall in 2013, according to preliminary estimates on Tuesday. This should make it Europe's fastest-growing economy in 2013, and marks a resurgence that has outstripped government and Bank of England predictions. Yet there are still potential nasty surprises in the woodshed. Of the 0.7 percent growth in the last three months of 2013, services contributed 0.6 percent, led by business and financial services with 0.4 percent, and just 0.1 percent was contributed by manufacturing - suggesting that the government's much-vaunted "March of the Makers" initiative it launched last year has not been successful. Construction output shrank during the quarter, belying optimistic noises from property companies.

(Daily chart / 4 hourly chart below)

GBP/USD January 30 at 22:45 GMT 1.6486 H: 1.6562 L: 1.6444

GBP/USD Technical

S3S2S1R1R2R3
1.64501.62501.59001.6600--

During the early hours of the Asian trading session on Friday, the GBP/USD is trying to rally back to the 1.6500 level after dropping sharply back towards the support level at 1.6450. Current range: Just above 1.6450 around 1.6490.

Further levels in both directions:

• Below: 1.6450, 1.6250 and 1.5900.

• Above: 1.6600.

OANDA's Open Position Ratios

(Shows the ratio of long vs. short positions held for the GBP/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The GBP/USD long positions ratio continues to rise a little back towards 30% as the GBP/USD eases back from the resistance level at 1.66 again. Trader sentiment remains heavily in favour of short positions.

Economic Releases

  • 21:45 (Thu) NZ Trade Balance (Dec)
  • 23:30 (Thu) JP CPI Core (Nation) (Dec)
  • 23:30 (Thu) JP Unemployment (Dec)
  • 23:50 (Thu) JP Industrial Production (Prelim.) (Dec)
  • 00:05 UK GfK Consumer Confidence (Jan)
  • 00:30 AU Private Sector Credit (Dec)
  • 05:00 JP Construction orders (Dec)
  • 05:00 JP Housing starts (Dec)
  • 10:00 EU HICP (Flash) (Jan)
  • 10:00 EU Unemployment (Dec)
  • 13:30 CA GDP (Nov)
  • 13:30 US Core PCE Price Index (Dec)
  • 13:30 US Employment cost index (Q4)
  • 13:30 US Personal income (Dec)
  • 13:30 US Personal spending (Dec)
  • 14:45 US Chicago PMI (Jan)
  • 14:55 US Univ of Mich Sent. (Final) (Jan)

*All release times are GMT

Source: GBP/USD: Falls Back To Support At 1.6450 To One Week Low