gbp/usd forecast

Pounds to dollars daily chart - 16th November 2010

The pounds to dollars pair continued its recent sideways consolidation once again yesterday, ending the currency trading session with a relatively wide spread down candle closing at 1.6040, just below the 14 day moving average once again. Whilst the euro dollar has fallen sharply as the twin effects of a resurgent US currency and Euro zone fears of a bail out for Ireland work in tandem , the effects on cable have been muted, with UK sterling continuing to hold it’s own against the dollar. As such, the positive correlation between the two currency pairs appears to have broken down once again, and moved well away from the traditional 0.9 relationship. Indeed one only has to look at the euro vs pound chart to realise that the euro is under considerable pressure at present from several quarters.

From a technical perspective, there are now two key levels on the daily eur/usd chart, the first of which is the potential price support in the 1.6000 price area, and the second is the 40 day moving average, which now sits immediately below at 1.5909, and either of these could provide the necessary platform in any further move lower. The key to the longer term will be whether cable is able to break back above the 1.6200 price region and from there to retest the high of last week at 1.6299, but we should note that in the last five days we have seen three failures at the 1.6183, the last of these being on Friday, which suggests resistance in this region and a further short term pull back in due course.