Tuesday’s ETF Chart To Watch: CurrencyShares British Pound Sterling Trust (FXB)

by on June 19, 2012 | ETFs Mentioned:

Equity markets kicked off the week on a positive note as investors cheered on positive data on the homefront along with encouraging developments in Greece over the weekend. The latest home builder index came in at 29, surpassing the previous reading of 28 and helping to spark a rally across the construction sector. Amidst the improving backdrop, crude oil prices slipped lower by over 1% on the day; futures prices for the fossil fuel settled just above $83 a barrel [see also UNG Catches Fire, Natural Gas Up 7%].

Investors will shift their attention to the United Kingdom later today as the latest CPI is released before Wall Street’s opening bell. As such, our ETF to watch for the day is the Rydex CurrencyShares British Pound Sterling Trust (FXB), which may experience volatile trading depending on inflation data, or if other eurozone news take precedence and encourage choppy trading in the currency market; analysts are expecting for inflation to come in unchanged at 3.0% [see also Euro Free Europe ETFdb Portfolio].

Chart Analysis

FXB has been fairly range bound since equity markets bottomed out in early October of last year. Notice how this ETF has considerable support at around $152 a share (blue line); FXB has bounced off this level on October 6, 2011, January 13, 2012 and most recently again on June 1, 2012. This ETF appears to be holding support at current levels, which makes establishing a long position quite lucrative [see ETF Technical Trading FAQ].

Click To Enlarge

What’s worrisome, however, is the fact that FXB also has resistance around the $156 level; notice how this ETF has endured several corrections after nearing $156 a share (dotted red line) throughout late November and December of last year. Furthermore, this ETF is trading may also face resistance near the $156 level as it attempts to summit its 200-day moving average (yellow line).

Outlook

If the latest CPI reading restores confidence in the U.K. economy, FXB could charge higher past $156 a share. In terms of upside, the $156 level is the first potential area of resistance followed by major resistance all the way at around $160 a share. On the other hand, weaker-than-expected CPI could cause concerns over economic growth; in terms of downside, this ETF has major support at $152 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.