GBPUSD: 1.5600 line in the sand

GBPUSD has a very well defined technical line in the sand at 1.5600 as we approach this weekend’s crucial events, which will also affect GBP pairs through the EURGBP cross.

GBPUSD weakened off the 1.5600 level once again late yesterday, mostly on heavy EURGBP buying as the market unwound the big sell-off in the wake of the initial euphoria and subsequent disappointment over the Spanish bailout. From here, we may tread water until we get to the other side of the weekend’s Greek election. The speculative positioning (in short term indications like the US futures market positioning) in Euros is very significant, so volatility could pick up even for any currency heavily traded against the Euro after this weekend. Volatility has picked up of late, but we are still significantly below where we were last fall in EURUSD and GBPUSD.

Chart: GBPUSD
The path to the downside is open at the moment as long as we remain below the 1.5600 line of resistance, which is very well defined now after the last week+ of action. If that level fails to hold, the bears will have to retreat to the 200-day moving average, currently around 1.5750. As long as we remain below those two resistance areas, the structure remains nominally bearish and the big focus to the downside is on that 1.5225/75 zone that has kept the pair contained since the summer of 2010.