British Pound Trend Lines Show Inflection Points

07/23/2010 12:01 am EST

Focus: FOREX

The recent minutes from the BoE and comments from MPC members expressed the uncertainty that surrounds the UK economy and future monetary policy. Therefore, it is understandable if markets remain convictionless when trading the GBP/USD.

The pair has been in a tight ascending channel for over a month, providing a level of predictability that scalpers desire. Dovish BoE minutes weighed the pair yesterday only to have a strong retail sales report provide support today. Upcoming GDP could generate volatility, but with the lack of conviction, the pair’s trend lines offer potential points of inflection.

Key Technical Levels

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The 20-day SMA at 1.5170 has been a key support level and has come to define the lower bound of the channel. The channel trend lines are currently placing support and resistance at 1.5150 and 1.5600, respectively. A descending short-term trend line is providing target levels for entering and exiting positions, but based on the broader pattern, a break above is expected, which could provide a short-term spike to profit from.

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Quantitative Metrics

The GBP/USD’s Bollinger band has its ascending channel and has started to flatten. At 487 pips, the pair’s level of variance is at the bottom of the most-traded pairs. Daily volatility has also quieted with the ATR declining to 172 pips and accounting for only 1.06% of the spot price. On a side note, implied volatility readings for yen crosses are higher as the BoJ has resumed intervention talk.

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By John Rivera of

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