Cable (GBP/USD) has had fairly predictable range over the last 3 years. The demand for the pound against the dollar has revolved around the 1.57860 area, where a significant weekly or monthly close below this has sent the market down to support and above it seeking resistance levels.
The range in the longer term view has been between the high 1.67450 and the lows of 1.42460. Once the highs were rejected in October 2010 we have seen a bearish bias with the monthly charts making consistent lower lows until the ultimate lows were hit at 1.48268 back in June 2013. From here we saw a resurgence in the demand for the pound and a 6 month bull run driving cable towards the 3 years highs.
So what does this all mean for cable in 2014?
My outlook on the pound is positive, I believe that the UK will be the first of the G8 nations to move on rates and believe that this will lead to strong demand for the pound. As with previous predictions although my view is bullish I think that there will have to be some profit taking and from a technical analysis perspective I see the weekly RSI has topped out at 66 (70 over bought) and looks to be weakening. There have been 3 weekly failed attempts to test the key weekly 1.66030 and monthly resistance at 1.67450 and as we have failed to close outside or even test the upper Bollinger band it look that we are certainly in for some shorts to enter the market.
There is key support at 1.62602 and if this is tested and broken then I see no significant buyers entering the market until 1.57511. I personally think that after the strong run we have seen over the last 6 month we will see an equally sharp retracement down. Taking the monthly highs and lows and drawing a Fibonacci retracement I see bears potentially eyeing up the pivotal 50% level and expect cable to drop as low as 1.54846. This is where significant buying should come in to the market and I expect after attempts to push cable lower in Q1 and Q2 we will see cable trading back towards the 1.62/63 levels in Q3 and then making new highs by the end of the year.