Monday proved to be another up-down day on Wall Street as major equity indexes failed to hold on to gains as the trading session drew to a close. News of China’s trade surplus widening more than expected last month was largely overshadowed by fiscal cliff woes at home, which will likely continue to plague investors’ confidence until policymakers present a concrete solution. Greek debt drama is also lurking; however, many are anticipating that policymakers will agree on another “band-aid” solution to avoid an outright default this week [see ETF Insider: Fiscal Cliff Woes Set Volatile Tone].
FXB is currently trading in a “sweet spot,” as the ETF flirts with support at its 200-day moving average (yellow line). This ETF does have a history of managing to bounce higher after it touches its 200-day moving average, however, recent price action suggests that this pattern may not hold true this time around. Since failing to summit $161.50 a share (red line) for the second time this year in late September, FXB has endured a choppy correction; notice how this ETF has posted a series of lower-lows and lower-highs for the past two months, perhaps suggesting that buyers are still on the sidelines in anticipation of a more attractive entry point [see 5 Important ETF Lessons In Pictures].
Despite the attractive upside potential, we advise conservative investors to hold off from pulling the trigger until FXB establishes definitive support above $158 a share [see our ETF Technical Trading FAQ].Outlook
If the latest United Kingdom inflation report paints an optimistic outlook for the British pound, FXB could be in for a rally on the day; in terms of upside, this ETF may face resistance as it nears the $159 level. On the other hand, a weaker-than-expected CPI reading may drag on the British pound; in terms of downside, this ETF has support around $156 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.