Cable trades at seven year highs

The most dominant theme in the FX space was US dollar weakness on the back of mixed data and some Fed speak.


Chicago PMI missed estimates, while pending home sales came in well ahead of estimates. Fed member Williams was on the wires saying he still believes the first rate hike will be in the second half of 2015 and this contributed to see USD weakness.

Recent comments by Fed members have actually been quite hawkish and this recent comment seems to have swayed expectations. The US dollar broadly lost ground, with the dollar index slipping below 80 for the first time since May. With the greenback losing ground, the sterling was one of the biggest beneficiaries of this move.

Potential for further gains

GBP/USD had been threatening a move higher for a while after a long period of consolidation around 1.7000. The pair finally managed to break June highs which resulted in a breakout, with the pair rallying to 1.712. With cable now trading at its highest since October 2008, it looks poised for further near-term gains. The question now is how far can the pair run following this breakout.

On the weekly chart, there is an uptrend support line which has been in place since July 2013 which kicked into action and underpinned price action in May this year as well. This has been a key driver of the breakout and any pullbacks into this support could be used as an opportunity to buy.

The RSI is still short of overbought territory which could drive the pair to 1.735 in the near term. This level is the 50% retracement of the sharp drop from the end of 2007 to the beginning of 2009. While there is a bit of data out of the UK this week, chances are there will be more movement on the USD side of the equation as there a raft of economic releases on the way. Any further weakness could see cable extend its gains.

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