Whilst Cable has done well to remain within range against the Greenback there is a case building for a downside break this week.
An interesting observation is that whilst Friday saw the Greenback pop up to a new 4-year high the British Pound managed to held ground and remain within the 1.56-1.574 range. Whilst it remains within this range then intraday trading is preferred and to bring out the range-trade strategies (sell at resistance and buy at support).
However we may soon be reaching a breakout as we are hit with data from both sides of the Atlantic. Tuesday brings the Inflation Report hearings and if recent data is anything to go by then we may see soft data her for the UK, to bring Cable to the lower half of the range. Wednesday provides 2nd estimate GDP, although this is expected to remain stable at 0.7% q/q.
It is more likely to be the US on Thursday which provides the lead, if inflation report fails to deliver. At 12:30are AEDT we have Core Durable orders, unemployment claims and Core PCE released simultaneously.
We all know the FED is closely watching employment conditions and inflation data and that PCE is their preferred measurement for inflation. They have also recently pointed out they expect inflation to soften so if we come in on (or above target) then we can expect further strength for the Greenback. Combine this with soft data form UK and there is a good case for a downside break for cable and for it to target 1.5420.
When you consider the trend is clearly bearish and fundamentals favour continued divergence between the two Central Banks, then any rallies towards the upper resistance area could be a good place to consider jumping on board the bearish trend.