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

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Equity markets kicked off the week on a fairly lackluster note as major indexes oscillated between minor gains and losses throughout the day after posting a strong finish last Friday. Fiscal cliff woes are back in the headlines as investors continue to look for signs of certainty amid an outlook largely clouded with potential tax hikes. As such, political gridlock will continue to foster choppy trading as Democrats are standing by their efforts to raise taxes for those in the high-income bracket, while Republicans vouch their support for limiting deductions [Download 101 ETF Lessons Every Financial Advisor Should Learn].

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As the eurozone continues to struggle with its own budgeting battle, investors may turn their attention to the Rydex CurrencyShares British Pound Sterling Trust (FXB, A-), which may see an uptick in trading activity following the overnight reaction to the latest GBP gross domestic product data. Analysts are expecting Great Britain’s economy to have grown by 1% for the quarter, which should offer hope for its neighboring debt-burdened currency bloc [see King Dollar ETFdb Portfolio].

Chart Analysis

Since failing to settle above $161.50 a share (red line) in late September of this year, FXB has managed to carve out a fairly well-defined downward slopping trading channel for itself; notice how this currency ETF has managed to post a series of lower-lows and lower-highs since encountering selling pressures on September 21, 2012. What’s encouraging is that FXB has managed to bounce off its 200-day moving average (yellow line), although caution should be exercised before pulling the “buy” trigger given the prevailing downtrend at hand [see 3 ETF Trading Tips You Are Missing].

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FXB

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Given the possibility of a lower-low for FXB over the coming weeks, we advise conservative investors to wait until this ETF establishes definitive support above $158 a share before jumping in long [see ETF Technical Trading FAQ].

Outlook

If the latest GDP report comes in better than expected, the British pound may have the wind at its back for the day; in terms of upside, FXB may face selling pressures as it nears the $160 level. On the other hand, a disappointing economic growth reading could knock FXB lower; in terms of downside, this ETF has major 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.

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