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Pounds To Dollars – Forex Analysis 4th February 2010

Pound dollar daily candle chart - gbp vs usd

A seminal day for the pounds to dollars currency pair, as the risk driven flight into US Treasuries propelled the US dollar higher in afternoon trading, sending the UK pound crashing lower as a result, and ending the trading session with a wide spread down candle as a result. The weakness in the daily chart was signalled yesterday, with the 9 day moving average indicating weakness following the failure to breach this indicator with the high of the day. The bearish sentiment was further reinforced with the 9 day moving average crossing below the 40 day, and the 14 day moving average in turn following suit. The key for today was the breach of the 1.5850 potential support level, which has defined the lower level of the sideways consolidation of the last few months, and as I have said for some time, until this level was broken then Cable would continue to trade sideways in the well defined channel between 1.59 and 1.68. Clearly bearish sentiment is now dominant in the daily chart, and as a result we can expect to see a test of the 1.55 price level in due course, and should this fail to provide any support , then 1.5250 becomes the next probable target in the short to medium term. The longer term outlook is defined by the 200 day moving average, which now sits well above the current price action, adding further to the bearish picture. With strong resistance now above, we should take this opportunity to build short positions moving forward and adding to these as the currency pair move lower towards the 1.55 price point.

On the fundamental news front, today passed relatively quietly, despite the fact that we had interest rate decisions both in the UK and in Europe. In both cases rates were held at current levels, which came as no surprise to the markets, with the BOE also deciding to continue to maintain the stock of asset purchases financed by Central Bank reserves of £200 billion. With the UK economy continuing to record sluggish growth in Q4 last year, and with a substantial fall in output, there was little to surprise the markets in the BOE statement, with the prospect of an interest rate rise still some way off, and indeed in Europe the indications are that this could even be in 2010 before we see any changes in base rates. The key of course for tomorrow will be the Non Farm Payroll figures, and should they be better than expected, and even record a positive figure, then we could see the pounds to dollars pair replicate today’s candle once again, with a further sharp fall as a result.

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