Key Points:
- The technical bias is rather bullish despite recent setbacks.
- A reversal could see the pair back up above the 1.30 handle.
- Fundamentals still proving to be a drag on the Cable’s performance.
The Cable had been making steady progress over recent weeks but a near-term slide is beginning to suggest we may unceremoniously sink back below the 1.2772 handle. Indeed, given May’s weakening grasp on the UK elections and the fallout from the Manchester attack, it seems more than reasonable to suggest a grim outlook for the pair. However, contrary to this seemingly reasonable forecast, the technical bias suggests we may have something altogether different instore.
As is made apparent in the below chart, the Cable has been laying the groundwork for an Elliot wave that could see it well and truly back above the 1.30 handle. Of course, this is largely contingent on the current level of support around the 1.2772 mark remaining intact and this is not exactly a given. Nevertheless, there is a relatively robust argument to be made that we will see support hold as we can see that this price coincides with both the 38.2% Fibonacci level and a historical reversal point. Moreover, stochastics are flirting with becoming oversold which will be helping to cap downsides.
If we do indeed see support remain in place, the subsequent reversal could be the start of an advance that might take the pair back above the 1.30 handle. Such an uptrend would be in line with our current EMA bias which, as is shown above, is highly bullish despite the recent spate of losses. Furthermore, the recent foray to the downside has pushed the Cable back to its lower Bollinger band which would typically indicate that buying pressure is about to return.
Whilst the technicals have a fairly clear bias, the fundamentals remain decidedly more opaque. Setting aside individual economic news items, the spectre of Brexit continues to hang over the UK and generates significant headwinds with which the GBP must contend. In addition, any of the bullishness inspired by early beliefs that Theresa May would lead the Tories to a landslide victory – and thereby strengthen her hand in negotiating Brexit – could evaporate as the latest polls are suggesting that her lead is narrowing.
Ultimately, despite this fundamental bias, the outlook is still more positive than it has been previously. This reflects the end of the ‘Trump Bump’ for the Greenback and, more recently, the improving technical forecast which is laid out above. As a result, the bulls may finally be back in business as we move ahead which should lead to an interesting few weeks for the pair.
