Fiscal Cliff Threatens British Pound Uptrend

Although the primary driving force behind the three day sell-off in the March British Pound has been the threat of the U.S. fiscal cliff, today’s report that U.K. house prices fell for a sixth month in December didn’t help matters. Despite its recent strength against the U.S. Dollar, the bigger picture suggests that the U.K. economy is likely to remain weak against the U.S.

Technically, the main trend on the daily chart is still up. The trend will turn down when 1.5998 is violated. Last week, a new main top was formed at 1.6304. A move through this level will reaffirm the uptrend.

Overnight the British Pound reached a low at 1.6138. Combined with the top from 1.6304, a new range was created at 1.6221 to 1.6241. Traders should watch for a test of this area. If the next rally stalls inside of this range then a secondary lower top could form, indicating a shift in sentiment. Besides the retracement zone, a downtrending Gann angle from 1.6304 drops in at 1.6244 today. This forms a possible resistance cluster with the Fibonacci retracement level at 1.6241 to 1.6244.