Cable’s strong rally nearly reached the 76.2% retracement of the 1.63/1.5350 slide that unfolded between early November and Christmas time (1.6071, versus today’s 1.6060 high) before succumbing to some profit-taking. The market is very geared up for a hike from the BOE as inflation sprints to 3.7%, nearly double the Old Lady’s target rate.
1.5955 is first support on pullbacks with more substantial support not seen until the 1.5875 area.
My suspicion is that the market is not as short GBP as it was EUR given the weakness in EUR/GBP in the weeks leading up to last week’s broad USD slide. That may limit the pound’s upside as EUR/GBP short-covering could limit Cable’s strength near-term.
Cable is all about inflicting pain, and my fear is the market may have a few too many pounds on board at this stage…The pain trade looks lower…
