Stocks charged higher on Wednesday as mixed data releases offered some hope to investors that perhaps the Fed would taper more cautiously when the highly anticipated September meeting finally rolls around. The bears focused on a worse-than-expected trade deficit data, coming in at $39.1 billion compared to last month’s deficit of $34.5 million, while the bulls digested upbeat auto sales, which came in at 16.1 million vehicles compared to last month’s sales figure of 15.8 million [see Visual Guide To Major Index Returns By Year From 1970].
Our chart to watch for today is the CurrencyShares British Pound Sterling Trust (FXB, A-), which could experience volatile trading as investors digest the latest interest rate decision from the Bank of England. Although analysts are largely expecting for the benchmark rate to hold steady at 0.50%, the outlook issued after the decision itself can still spur trading activity.
Consider FXB’s one-year daily performance chart below. This currency ETF has remained in “bearish territory” underneath its 200-day moving average for most of 2013; notice how FXB has failed to rebound past $156 a share since sinking below its 200-day SMA at the start of the year. In fact, the $156 level appears to be a stiff resistance marker (red line) that FXB has failed to summit on several occasions, despite establishing higher-lows along the way [see The Ultimate Guide To Currency ETF Trading].
Given FXB’s inability to settle above $156 a share despite establishing rising support levels over the past four months, we would advise conservative investors to wait on the sidelines as it looks to summit this same resistance level over the coming days. Nonetheless, a short position is not recommended given the potential for a breakout to the upside seeing as how FXB has managed to peer above its 200-day SMA [see 7 Rules ETF Day Traders Must Know].
If the latest economic commentary issued by the Bank of England strikes an optimistic tone among investors, British stocks and the pound should have the wind at their back on the day; in terms of upside, FXB must summit very stiff resistance between $155 and $156 a share. On the other hand, worrisome remarks from policymakers could spur profit taking pressures; in terms of downside, FXB has support at $152 a share followed by the $148 level. 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.