Tuesday’s ETF Chart To Watch: FXB In Focus Ahead Of Great Britain’s CPI Release

by on May 21, 2013 | ETFs Mentioned:

Stocks kicked off the week with a bang as deal-making news across Wall Street brought out the bulls, although profit taking swooped in before the closing bell as markets digested the stellar gains from last week. News of Yahoo! (YHOO) buying blogging giant Tumblr and drug maker Actavis (ACT) purchasing Warner Chilcott sent a wave of euphoria across the stock front as investors had no other major economic reports to read through on the day [see also The Cheapest ETF For Every Investment Objective].

Our ETF to watch for today is the CurrencyShares British Pound Sterling Trust (FXB, A-), which may spike in either direction at the opening bell as investors react to the overnight CPI release. Analysts are expecting Britan’s infaltion rate to come in at 2.6%, which would mark a modest downtick from last month’s CPI reading of 2.8%.

Chart Analysis

Consider FXB’s one-year daily performance chart below. This currency fund has endured a dismal downtrend since the start of the year, although it does appear to be showing signs of bottoming out. Notice how this ETF sharply rebounded above the $148 level in mid-March, after which it proceeded to trade higher along rising support (green line) making higher-highs and higher-lows along the way. Hope for a recovery recently deteriorated, however, after FXB traded below its trendline and went onto re-test support at the $150 level as seen over the last few trading sessions [see also How To Use A Pairs Trading Strategy With ETFs].

Click to Enlarge

FXB is still on a path to recovery as long as it can hold its head above $150 a share; as such, for those looking to take advantage of the recent correction in the British pound, we advise using a tight stop-loss near the recent lows along with a conservative price target at or below the most recent resistance level (blue line) around $154 a share [see How To Take Profits And Cut Losses When Trading ETFs].

Outlook

If Britain’s inflation rate comes in well below expectations, further profit taking pressures could plague the pound; in terms of downside, FXB has major support around $150 a share followed by the $147 level. On the other hand, a healthy uptick in CPI could spur a rally for the pound among currency traders; in terms of upside, this ETF has stiff resistance at the $154 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.