Down with the Pound
Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of KathyLien.com and FX360.com. You can readthe full article on her blog.
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowOver the past few trading days, the British pound has been confined to a very tight trading range. The chart at right illustrates the predicament that GBP/USD traders find themselves in right now and I believe that the breakout will be to downside with the GBP/USD testing 1.60 in the near term.
On Thursday, Standard & Poor’s announced that “We no longer classify the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally” and I have to say that this is HUGE. S&P had already lowered the U.K.’s place in its Banking Industry Country Risk Assessment gauge to Group 3 from Group 2 on Dec. 21. The risk of investing in the U.K. is now on par with the risk of investing in countries like Portugal, Saudi Arabia, Ireland,Chile and Austria. You can imagine what this means to investors looking for a place to put their money.
On top of that, the outlook for consumer spending is quite dismal. In my report for FX360.com last week, I talked about how the CBI retail sales index fell by the largest amount since August 2009 which suggests that U.K. consumers cut back spending after the holiday shopping season. There is a very good chance that this weakness will feed into the retail sales report and therefore we remain skeptical of the rally in the GBP/USD and believe that the odds are skewed towards a move down to 1.60. The latest announcement only strengthens this call.
Here’s a technical chart of the GBP/USD.
Technical Chart of the GBP with signals added.
