GBP/USD Monthly Analysis for February 2013

The gradually weakening U.S. Dollar helped launch a breakout in the British Pound in January, but then economic reality set in and the Sterling came back to earth. The failure to generate any interest on the long side following the breakout of a long-term downtrending Gann angle suggests that the GBP/USD is poised to trade lower in February. The nearest support level is a long-term uptrending Gann angle.

In early January, the GBP/USD broke through a Gann angle from the 2.1160 November 2007 top at 1.6200. This angle moves down to 1.6160 in February and could prove to be important resistance if tested. Once again a breakout over this angle could trigger the start of a huge rally, but traders are likely to be a little tentative this time especially since it failed in January.

Before the Sterling tests the uptrending Gann angle, it has to slice through the retracement zone created by the 1.5268 to 1.6380 range. This retracement zone is 1.5824 to 1.5693. The lower end or Fibonacci level was tested in late January and proved to be short-term support.

If the retracement zone fails to provide support then look for a test of the uptrending Gann angle from the January 2009 bottom at 1.3501. This Gann angle is at 1.5461 during February. Since the main trend is up, look for buyers to show up following the first test of this angle. A failure to hold this level could trigger an acceleration to the downside.

It is possible that the GBP/USD will straddle the retracement zone throughout the month. This decision by traders will be based on whether the Bank of England decides to implement another round of quantitative easing. More easing should mean lower prices since this action essentially floods the market with money. A failure to renew its asset buyback program could trigger a short-covering rally.