The “cable” rallied recently against the greenback. Currently one British pound buys you one US dollar and 58 cents. The pair broke above1.5778 yesterday, reaching its May levels. According to a Bloomberg News survey, the British economy contracted by -0.5% in the second quarter, a marginal improvement over the -0.7% quarterly rate of contraction originally reported. Nevertheless, this would market three consecutive quarters of contraction for the British economy, and the fifth quarterly contraction over the past seven quarters; the British economy is very fragile indeed. Furthermore, on a yearly-basis, the second quarter revision suggests that growth only contracted by -0.6% versus the -0.8% contraction originally reported. Although the fundamental background of the British pound is not flourishing, the greenback is no safe haven either.
Technically the breakout of 1.5778 is a breakout from a very wide trading range that lasted three months and covered around five US cents. Binary traders should be aware that the breakout could reverse as many breakouts from ranging markets follow this pattern. Despite that, a more careful look at the price action reveals that the bulls have driven the market up steadily from the beginning of August. Higher local highs are followed by higher lows, defining a mid-term bull trend. The EMAs with periods of 20 and 50 bars are sloping steadily to the up side, giving all market analysts and active traders the confidence to believe the breakout is going to lead the market to rally to next major resistance. The next logical target for the bulls should be 1.5845, which is a local high from a mighty bear trend that stopped for a while, and made a flag continuation pattern that topped at 1.5845, making it a major line in the sand from then on. Support is expected at 1.5745 and 1.5675. The first one is going to give a significant boost to bullish confidence as it is a previous local high that was broken and also is very close to the reading of the 20-period EMA.
