Trade-24 Weekly Review 05/11/12

Omer Talovic | 08:00 | 05/11/12 |

Last week we wrote an extensive review of the British economy and the GBP. We noted the expanding triangle that developed in the pair. What has changed since then and how is the triangle faring?

Well, the pair was not able to decisively break the resistance line of the triangle, but did push through it during last week. Then, the pair pared gains. 1.6120-1.6140 resistance area is now the one to watch in order to decide whether the pair will break the resistance line of the triangle. Support lies at 1.6025 and then 1.5990. As time goes on and the triangle expands, its support line is now near 1.5850.

From the fundamental point of view, BOE’s chief economist, Spencer Dale, expressed his pessimistic view last week. He said that the boost from the Olympics is not here to stay. He added that in the fourth quarter the economy will show substantially lower results. He even thinks the British economy will stay weak for the next couple of years. The economist thinks that a strong pound is not in the interests of Britain and he would prefer the GBP/USD to trade lower. The reason is that the lower is the exchange rate, the cheaper it is to export British goods.

Still, against the EUR the GBP is faring well, holding near the 0.80 figure. Economists explain this, saying the economic perspectives of Britain are better than those of Europe. “Britain is one country with one government, while in Europe they have many governments that are having hard time agreeing with each other. The way the EU is handling the debt crisis shows that disagreements between the countries still linger. This makes the future for the EU look gloomier than in Britain”, said a consultant in a political risks managing company in London. “In Greece, for example, the situation is deteriorating. In a week or two the nation will run out of money. In order to get new cash injections, they must cut their government budget. The people of Greece oppose the relentless spending cuts. Elsewhere, in Spain, Catalonia region is contemplating of liberation from Spain. In Britain we don’t have this kind of problems. It is one united nation”, he added.

If you like the idea of stronger GBP vs. weaker EUR, EUR/GBP 1st target might lie at 0.7942. Then come 0.7900 and 0.7830. In case the EUR claws back, 0.8075 is the resistance or the place for stop loss. Under no circumstance should the above written analysis be seen as an advice.

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