June British Pound Reaches Key Decision Area

After turning the main trend down on the daily chart earlier in the week when it broke through a pair of main bottoms at 1.5632 and 1.5636, the June British Pounds have traded sideways-to-higher.

Based on the main range of 1.5240 to 1.5971, the key level that developed into support was the 50 percent level of this range at 1.5606. The actual low for the week is 1.5591. The market is currently trading on the bullish side of this retracement price, giving it a slight bias to the upside on a short-term basis. A failure to hold this level will weaken the market further with the Fibonacci level of this range at 1.5519 the next likely downside target.

Although the main trend turned down earlier in the week, the move did not produce an acceleration to the downside which may be the result of oversold conditions. Standing in the way of a potential rally is an uptrending Gann angle at 1.5660 today. Regaining this level and establishing support could trigger a near-term rally into a downtrending Gann angle at 1.5751.


Short-term traders are going to have to decide whether to trade counter-trend for a quick rally into resistance with an exit under the weekly low, or to hold on to short positions and perhaps even press the market further. Based on the way this market is behaving, this price level is definitely an area of interest.

Yesterday, Fitch Ratings said Britain risks losing its top investment grade because of its limited ability to deal with economic shocks. The rating service changed its outlook on Britain to “negative” from “stable”, indicating a “slightly greater” than 50 percent chance that the AAA rating will be reduced within two years. The company cited the weak economic recovery, high debt levels and threats from Europe’s debt crisis as the primary reasons for the change in the rating.

In determining its new rating, Fitch said its decision “reflects the very limited fiscal space to absorb further economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery.”

The warning couldn’t have come at a worse time. Besides grabbling with the slow economy and the sovereign debt crisis in Europe, the U.K. has been going through a rough period of financial austerity which has been highlighted by huge cuts in government spending. Traders will have to determine whether the government will loosen up a little or implement plans to lower taxes in order to stimulate the economy.

The market did not react too much to the Fitch downgrade since Moody’s Investors Service already warned last month that Britain risks losing its top-level credit rating if the economy deteriorates further. In addition, the downgrade did not come as a surprise either since according to a statement from Bank of England Governor Mervyn King on February 29, the Moody’s warning was a “perfectly reasonable” assessment.

Stripping out the fundamental news that appears to have been already priced into the market, traders should focus on the June British Pound’s down trend. This week’s sideways action can only mean impending volatility. This means a potential acceleration to the downside through 1.5591 or a short-covering rally into resistance that is likely to attract fresh selling pressure.