Thursday’s ETF Chart To Watch: FXB Rebound Hinges On BoE Rate Decision

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Major U.S. equity benchmarks continued their ascent into uncharted territory as better-than-expected earnings reports from bellwethers kept confidence levels elevated. Upbeat quarterly results from Whole Foods (WFM) and Electronic Arts (EA) resonated well for investors on Wall Street, and according to data compiled by Bloomberg, just over 70% of companies that have released results at the start of this earnings season have exceeded profit projections [Download 101 ETF Lessons Every Financial Advisor Should Learn].

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Our spotlight will focus on the CurrencyShares British Pound Sterling Trust (FXB, A-) today, as it could gap in either direction at the opening bell following Bank of England interest rate decision. While the benchmark rate is expected to hold steady at 0.50%, economic commentary issued after the rate decision itself could spur volatile trading in the currency market [see also King Dollar ETFdb Portfolio].

Chart Analysis

Consider FXB’s one-year daily performance chart below. Notice the steep downtrend that this ETF has endured since the start of 2013; since peaking at $161.32 a share on 1/2/2013, FXB has been sinking lower without a break until it managed to bottom just below $148 a share in mid-March of this year. Over the past two months this ETF has staged a formidable rebound by trading higher along a steeply rising support level (green line) alongside major equity benchmarks [see How To Swing Trade ETFs].

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Despite FXB’s fairly sharp rebound, there is the potential for another correction over the coming weeks; notice how this ETF has failed to summit $154 a share (blue line) on three occasions this month alone, perhaps suggesting that it will take a fundamental catalyst to propel it past this resistance level [see How To Take Profits And Cut Losses When Trading ETFs].

Outlook

If the Bank of England issues a worrisome economic outlook, the British pound could be in for a very rough day in the currency market; in terms of downside, FXB has support at $152 a share. Likewise, upbeat commentary from policymakers overseas could spur a rally for this currency ETF; in terms of upside, FXB has major 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.

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