The GBP USD traded slightly lower amid speculation that the Bank of England is planning further measures designed to stimulate the economy.
The Pound weakened overnight after U.K. Deputy Prime Minister Nick Clegg said the nation’s recovery will probably be “uneven.” The BoE also left interest rates unchanged, but that was expected.
Planned budget cuts and tax hikes have been bothering investors lately, helping to pressure the British Pound. Investors are concerned that the economic recovery may stall because of the new austerity measures. This is the reason behind speculation that the central bank may have to take action to keep from derailing the recovery.
Technically, a downtrending Gann angle at 1.5517 has been the stopper in this market. Unless buyers can trigger a breakout over this angle, then look for further downside pressure. Based on the current short-term pattern, a retracement to 1.5647 is possible.
If the Pound/Dollar cannot penetrate the Gann angle then look for more downside pressure and an eventual test of a major 50% price level at 1.5113.
E-mini S&P Shows Little Follow-Through after Pre-Market Pop
The September E-mini S&P 500 showed little follow-through to the upside after crossing the last swing top on the daily chart at 1107.25 early this morning.
The S&P rose to its high following a better than expected U.S. Weekly Initial Claims Report which now seems to indicate that the move was probably short-covering rather than new buying. For some time now, U.S. investors have remained in the “buy the dip” mode rather than “buy the strength.”
Technically, the September E-mini S&P formed a new main bottom at 1086.25. A break through this level will turn the main trend down and indicate a possible break to 1074.50. Although today’s breakout above 1107.25 did not launch a strong rally, this may indicate that the market will have to claw its way to a retest of the August top at 1127.75.
This week’s rally in the U.S. equity markets shows that at this time it’s all about the strength of the U.S. recovery and improvements in the European banking system that will drive investors back into stocks. The sell-off in gold and T-Bonds could be indicating that money is getting ready to move into risky assets once again.
Look for more of the same trading action on Friday because of the Jewish holiday. Trading volume has been down as it seems many traders have been on extended end-of-summer vacations. This is the easiest conclusion I could form, but in reality it could be because of the lack of clarity and conviction by the Fed and the inability of the Obama administration to come up with a viable economic stimulus plan. The November elections and healthcare reform also have investors confused. The asset allocators seem to be the only ones showing any activity.
My outlook for the U.S. Dollar over the next 90 days varies, depending on which currency you compare it to. The AUD USD and NZD USD have clearly defined uptrends, the USD JPY is waiting for the Japanese government to intervene, and the Euro and British Pound have similar economic worries as the U.S. and, as such, discourage any long-term investment.
As a trade weighted index, the Dollar looks flat, but versus the majors, the best thing to do at this time is to play the trends.
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