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By HaleStewart January 2, 2014 8:57 am
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Monthly Pound/Dollar Chart Shows Strong Upside Resistance

Above is a monthly chart of the GPD/USD.  It shows two basic trends, the first of which is a massive sell-off that occurred as a result of the Great Recession.  The pair dropped from 2.00 to around 1.40.  Since then, the pair has traded in a range of approximately 1.50-1.65 (with a brief dip below that 1.50 level in early 2009). 

While the pair did rally late last year on the strength of UK data (which is still very bullish), the chart is now right below strong resistance in the ~ 1.67 area.  Several candle wicks from 2008 printed as high as 1.70 making the 1.67-1.70 area one of prime resistance.  On the bullish technical side, prices are now above the200 month EMA and all of the shorter EMAs are rising, providing technical support for the pair.   

The real wild cards for this pair are fundamantal.  We know the Fed is in tightening mode.  Any solid US economic news should support a short-term dollar (24 hours or less) rally, as traders will assume this adds further ammunition to the tapering argument.  The BOEs cards are less clear.  UK rates are near long-term lows but we have no formal guidance for when the BOE will reverse this policy. 

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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