Cable is trading at an important level having rallied strongly today following hawkish comments from Bank of England Governor Mark Carney and disappointing US retail sales figures.
The pair was looking bullish up until a week ago when it broke below the flag pattern casting doubt on the apparent bullish bias. However, this was followed quite quickly by a morning star formation and rally off the 1.5330 lows which suggested the bullish bias remains.
Now it faces a big test that could provide further clarity on the outlook. The 233-day simple moving average, descending trend line – from 22 June highs – ascending trend line – from 13 April lows – and 50 fib level – 18 June highs to 8 July lows – all combine at the current level to potentially provide significant resistance for the pair.
If momentum takes it through all of these levels, especially at the first time of asking, it would be a very bullish signal. Early signs suggest this could well happen with the descending trend line and 233-DMA being broken (although there has not yet been a daily close).
A look at the 4-hour chart possibly supports the bullish view as despite failing at the first attempt to break back above the ascending trend line, the pair has found support from the descending trend line which could be viewed as confirmation of the break higher. If this is followed by another test of the ascending trend line and 50 fib level, the bears may not be able to protect the level again.
If it breaks above here, we could possibly see a move back towards 1.5930 – 18 June highs – although it may run into resistance along the way around 1.5775.
If on the other hand, the pair fails to break above the ascending trend line, it could be seen as a very bearish signal as that would act as confirmation of the break below it last week. The stochastic and the MACD histogram on the 4-hour chart both suggest this may happen as they are showing divergences with price action, albeit minor ones. The latest MACD histogram is also incomplete so we shouldn’t read too much into it at this stage.