Sunday, February 28, 2010

GBP: Broad-based breakdown confirms deeper correction

GBP was the main underperformer over the past week as a number of critical support levels have given way to impulsive weakness. We continue to hold a short position in GBP/USD
as the medium term trend remains firmly intact particularly given the violation of the next line of important support near 1.5275, the 50% retracement from the 2009 cycle low.
Importantly, this setup was confirmed by the action in the crosses over the past week led by the bullish breakout in EUR/GBP through the critical .8830/.8855 resistance zone. The acceleration through this important pivot zone from Q4 which also represented the 200-day moving average and downtrendline from the October ’09 peak confirms a deeper
corrective phase underway with targets near .9200. Also, the breakdown in GBP/JPY below the key 138.25 February low raises the risk of a deeper correction with targets closer to 129.With similar patterns of GBP weakness developing in GBP/CHF and GBP/SEK, this broad-based underperformance is likely to continue in the coming weeks.

FX Markets Weekly4

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