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Forex Market Analysis – Pounds To Dollars 27th August 2009

Forex Technical Analysis

Yesterday’s down candle on the daily chart for the pounds to dollars pair, pushed Cable once again closer to the important technical level at the 1.6000 price handle which has really defined the trading level for the forex pair in the last few months. As the markets prepare for Labour Day, the end of the summer holiday period, and the prospect of an increase in trading volumes across all markets once again, this technical price point may once again prove to be pivotal as the fundamental factors combine with the technical picture to produce the medium term price trend. In simple terms, should this level be breached in the next few days or weeks, then this will signal the end to the recent rally, and a possible return of some short term US dollar strength, with the pair falling as a result. However, should this level hold and provide the necessary support, then we may see Cable bounce higher back to retest the 1.70 price region, with a break and hold above signalling further sustained US dollar weakness. Only time will tell and in the short term the outlook is bearish with all three moving averages pointing lower.

Fundamental Forex Analysis

In the UK the Nationwide HIP m/m which came in better than expected at 1.6% and showing that house prices may, once again, be moving upwards.  Later we had the Preliminary Business Investment figures which came in far worse than expected at -10.4% against a forecast of -3.6% and reveals the extent to which capital investment by business fell in Q2 and is an indication of the depths to which the UK economy has fallen.  As a leading indicator and given the extent of the actual from forecast this may prompt the forex market to sell sterling in the short term.  The final item for the UK was the CBI realised sales – a diffusion index based on a survey of retailers and wholesalers which too came in worse than expected at -16 against a forecast of -12, and slightly worse than the previous month.   Meanwhile this afternoon sees the Preliminary GDP figures for the US, unemployment claims, Preliminary GDP Price Index & Natural Gas Storage numbers.  In addition there is also speech from FOMC Member Lacker.  Of this data set it is the first two items which are considered “red flag”.  Preliminary GDP is forecast at -1.4% – slightly worse than previous and the unemployment claims at 562k, a slight improvement from previous.  Given this combination we could have an interesting afternoon trading session with the pounds to dollars pair.

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