Pound makes break for $1.70

After pressuring the $1.65 level for weeks, the British Pound has finally managed to push through that level and has quickly made a move toward $1.70. July 30th, one Pound was worth just below $1.64. July 31st, it pushed against $1.65, before making a sharp break above $1.67.
Another move between the 31st and August 3rd moved the Pound within striking distance of $1.70 before a swift pullback brought it back to the $1.67 mark. Now, the Pound sits at $1.6943.

The Pound has seen a fairly volatile 52 weeks, with a period high of $1.9628 when the currency was near its all time high against the buck. The periodic low for the Pound-dollar ratio is $1.3501, which means over a 60 pip spread.

Although medium-to-long term charts show Cable on a definitively upward trend, more recently, the currency pair has been trapped in a range between $1.59 and $1.65. This range trade held form from late May through this new breakout at the start of August. Considering the longer-term volatility, two months of 6-pip range trading is fairly conservative.

Now that the Pound has broken out of its recent range trade and surged to a new high for 2009, what is the next move? Usually a significant break for a currency from a significant length of range trade brings momentum traders into the action. It is quite possible that if market conditions dictate a pro-Pound or anti-dollar sentiment that a more powerful upward move for the Pound-dollar might be in store.

The $1.70 is an important psychological hurdle for the Pound. A quick move through that level after the breakout from $1.65 could really catapult the currency. Plus, the Pound-dollar currency pair is always one of the more heavily traded and volatile currency pairs in the speculative market.

Not surprisingly, higher oil prices coincided with the break in the Pound-dollar. The Pound and Euro (which also touched a new yearly high) have both moves fairly consistently against the dollar relative to oil prices. Oil dipped Tuesday morning after strong US economic data, but it has been closing in on $72 per barrel. Higher oil is usually correlated with a lower greenback.

Upcoming reports on US oil inventory levels are expected to show a significant boost to US stockpiles, which would likely keep prices contained. While this could restrict the upward mobility of the Pound-dollar, momentum buyers in the speculative market may act aggressively enough to propel the currency pair higher despite the economic picture over the next few days.

Neil Kokemuller
11:34 PM EST
Tuesday, August 4, 2009
Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .
Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.