The Monetary Policy Committee of the U.K. faces a supply side shock and a stagnating economy. Inflation in the U.K. is the highest on record since the Second World War. However the U.K. must deal with a deteriorating credit conditions, decreasing real income and savings, a contraction in both capital investment and retail consumption, and a -8.9% decrease in housing prices for the 2nd quarter of 2008. All information can be found on the Bank of England’s August 2008 Inflation report. These combined fundamental factors have pushed the Cable from 1.983 on August 1st to 1.867 on August 19th.
Technical analysis of the GBPUSD concludes that two Fib levels have been broken and that it is facing support at the .382 Fib level. The Cable peaked at 2.116 on November 9, 2007, using this peak as a reference leads to several conclusions. The GBPUSD was range bound between January of 2008 and July of 2008. The range was between the .214 and .382 Fib lines, the Cable tested the range by crossing the .382 Fib level 13 times until the range was broken August 1, 2008. After the break of the .382 Fib level at 1.959 the GBP continued on a downward spiral and lost 1,000 pips in two weeks smashing through the .5 Fib level at 1.913. The Cable has now settled around the .618 Fib line at 1.867. The GBP crossed the 200 day moving average several times in late July and for the last time on July 29, 2008. All of these factors combined with a bearish SSI indicate that the Cable could fall farther. On top of this elections in England are set for June 11, 2009 and parliament will pressure the MPC to focus on growth rather than inflation. The projections of the Bank of England indicate that prices will fall when growth becomes negative. While the MPC has not formally indicated recession they have projected that a recession will contain inflationary pressures.
Technical analysis of the GBPUSD concludes that two Fib levels have been broken and that it is facing support at the .382 Fib level. The Cable peaked at 2.116 on November 9, 2007, using this peak as a reference leads to several conclusions. The GBPUSD was range bound between January of 2008 and July of 2008. The range was between the .214 and .382 Fib lines, the Cable tested the range by crossing the .382 Fib level 13 times until the range was broken August 1, 2008. After the break of the .382 Fib level at 1.959 the GBP continued on a downward spiral and lost 1,000 pips in two weeks smashing through the .5 Fib level at 1.913. The Cable has now settled around the .618 Fib line at 1.867. The GBP crossed the 200 day moving average several times in late July and for the last time on July 29, 2008. All of these factors combined with a bearish SSI indicate that the Cable could fall farther. On top of this elections in England are set for June 11, 2009 and parliament will pressure the MPC to focus on growth rather than inflation. The projections of the Bank of England indicate that prices will fall when growth becomes negative. While the MPC has not formally indicated recession they have projected that a recession will contain inflationary pressures.
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