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The U.S. Dollar is strengthening this morning on renewed concerned that Moody’s downgrade of Portuguese debt is a signal that another Euro Zone bailout is coming. The major impact is on the Euro, however, the British Pound is also feeling some heat as traders seek the safety of lower yielding currencies.
Pressure could mount on the Pound throughout the session however; technical levels seem to be keeping theSterlingafloat. Overnight,U.K.house prices rose the most in eight months; experts cite a lack of supply of homes for the support. This news failed to ignite any interest in the long side of the Pound.
With the economy still struggling to get traction, the Bank of England is likely to keep its benchmark interest rate at a record low on Thursday. High inflation and the impact of government austerity measures are hurting the economy to the point that consumer spending and confidence have become stagnant. Also tighter bank lending restrictions are not helping economic growth either.
Technically, it looks like the September British Pound is forming another lower top. This is a strong indication that bearish traders are still comfortable selling rallies. The short-term range is 1.6246 to 1.5894. This range created a retracement zone at 1.6070 to 1.6112. Currently, it looks like the market is getting ready to weaken further. This will make the recent high at 1.6125 a new main top.
Looking at the bigger picture, the main range is 1.5297 to 1.6717. This is the December 28, 2010 top and the April 28, 2011 bottom. This range creates a major retracement zone at 1.6007 to 1.5840. This morning the British Pound is straddling the 50% level at 1.6007.
Looking at the number of bottoms near 1.5900, I think it’s safe to say that this zone is controlling the direction of the market. As long as the zone holds then continue to look for short-term counter-trend rallies. This pattern is likely to continue until a swing top is broken to the upside.
A failure to hold the lower boundary at 1.5840 could trigger an acceleration to the downside and so serious damage to the chart.
