Pound Dollar Chart 23 May 2010

Last week’s trading in cable was confined to a relatively narrow range with the currency pair attempting to re-base and build a platform of support in the USD1.42 price region.  Indeed both Monday and Thursday’s hammer signals suggested a modest recovery would be in prospect but neither of these have been validated or delivered, suggesting that we can expect to see a further slide in the pound dollar pair as a result.  Indeed the 9 day moving average is adding weight to this argument, presenting a stiff barrier to any upwards momentum and with the 14 day immediately above, these two technical indicators are adding their own pressure to the current bearish trend.  With further dollar strength likely, as indicated on the dollar index, then expect to see cable break below USD1.42 and continue downwards to re-test USD1.38 in the medium term.

With no fundamental news releases today in the UK and only existing home sales in the US trading in the pounds to dollars is likely to remain somewhat muted.  Later today there is a speech from MPC member Posen at the London School of Economics, the tone of which may cause some ripples in sterling.

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