Several bearish signals can be seen in the Cable’s (GBPUSD) 3 hour chart. After dipping to a low of 1.42512, the pair has rallied towards the 1.4500 marker. It, however, has been finding some resistance at 1.4500. This level, if you notice, acted as a support couple times in the recent past and could now switch its role as a resistance. The 38.2% Fibonacci retracement level also perfectly falls in line with 1.4500, making it a tougher hurdle to overcome. A bearish divergence, where the price makes lower highs and the stochastics register higher highs, is likewise present, suggesting that traders could soon jump back in to sell the pound in exchange of the dollar. Moreover, a rising wedge formation can be spotted as well. A breakdown from this formation could send the pair down at least to 1.42512.
Fundamentally, yesterday’s better-than-expected UK CBI industrial order expectations for the month May contributed to the sterling pound’s rebound. The index surveys about 550 manufacturers regarding the relative volume level of their projected orders in the coming 3 months. A reading above 0 suggests a rising order volume while a negative mark indicates a lower volume. While May’s score is at -18, it is still far better that the -33 market forecast.
The GBP’s rebound, though, could be short lived even if today’s consumer price index result (8:30 am GMT) shows an uptick in UK inflation (UK’s year-over-year CPI is expected to be at 3.5% from 3.4% in April). Why? It’s because the bearish sentiment towards the euro zone could spark another dollar buying, placing the euro and even the pound on the sidelines. Germany’s ZEW economic sentiment index in May, released at 9:00 am GMT later, is anticipated to drop to 47.1 from 53.0. Investors have been pretty much pessimistic with regard to the European market as they fear that the spending cuts required to solve Greece’s debt situation would hamper the region’s growth. You see, government spending takes about 18-20% of Greece’s total GDP. A cut in this account, therefore, could significantly decrease their output.