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The British Pound’s Rally


The Cable’s recent price action is very much similar to the AUDJPY’s (check it out here). As you can see, the GBPUSD broke out to the upside from a bearish pennant pattern or a symmetrical triangle instead of breaking down. At present, the pair is trading between the triangle’s resistance and the 1.4600 marker. If and when it moves past this level, the pair could spring all the way up until is hits a wall at 1.4800. 1.4800 could now switch its role into a wall as it already acted as a support before. Over the medium term, the pair could still be on its way south since its present downtrend is still intact. The recent rally in the pound could only be just a temporary correction. Until the downtrend gets broken and a reversal pattern shows up, I would still remain bearish on the GBP over the medium to long term.

Like what I’ve said in my last post, the recent rally in the non-dollar currencies was due to China’s ‘vote of confidence’ on the euro when it dismissed the rumors that it was reviewing its holdings of European assets. There was a great deal of risk taking during the US session yesterday which pushed the DJIA to close with a 2.85% gain. The market’s upbeat sentiment also spilled over today’s trading in the Asian and European markets.

Still, Europe’s actual debt situation is not really changed with China’s stance. China merely said indirectly that it was leaving its European portfolio untouched at the moment. That does not make the fiscal situation of Greece and the other EU-member countries any better at all. Given this, we could still see a negative turn in prices once the maturities of the countries’ debt get due. If any country in the EU experiences some difficulty in financing and repaying their debt, this could surely cause another panic in the market which would lead the investors to leave the anti-dollars like the euro and the pound for the safety of the yen and the greenback.

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