Ahead of the manufacturing production number the British pound has been particularly lively in the past couple of hours with 6 volatility candles alone being triggered on Cable on the 3 min chart.
For Cable, yesterday’s rally which saw the pair bounce off support in the 1.4760 region was a move more akin to a ‘dead cat bounce’ as once the pair hit the major resistance at 1.4840 at the start of the US session opened the floodgates for some heavy duty selling. This took cable down 1.4684 before it finally managed to find some support as the market moved into Asia.
A number of reasons have been suggested for this move, including the tensions and uncertainty surrounding the upcoming UK election, and as highlighted yesterday, we are seeing a major sell off in UK gilts. In the face of such uncertainty It appears foreign investors would much rather move their money into US Treasuries and Asia, and Japanese investors in particular also opting for Australian bonds.
From a technical perspective it is the weekly chart for cable which is perhaps is the most interesting and which may offer some temporary respite to the recent relentless sell off. Here we are seeing a potential minor level of support at 1.4645 but the point to highlight is the volume which continues to confirm the bearish sentiment with rising volumes and a falling market. The currency strength indicator confirms this picture with the US dollar rising (the red line) and the British pound falling ( the yellow line) on the daily timeframe.