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Tickers in this Article: FXB
Stocks kicked off this week on a positive note as earnings season optimism permeated the markets right from the opening bell on Monday morning. A larger-than-expected increase in consumer credit further bolstered confidence involving the health of the domestic recovery, as the figure came in at $20 billion, compared to last month’s reading of $11 billion. Looking ahead, all eyes are on the upcoming FOMC minutes this Wednesday as investors are looking for further reassurance that the Fed won’t prematurely scale back on stimulus efforts .

Our ETF to watch for today is the CurrencyShares British Pound Sterling Trust as it flirts with a key support level ahead of U.K. GDP estimates. Analysts are expecting for the U.K. economy to expand by 0.6% for the second quarter this year, while a surprise in either direction is sure to spark volatile trading for the pound in the currency market.

Chart Analysis

The British pound has taken a beating thus far on the year as investors have largely favored the U.S. greenback over foreign currencies while the European debt crisis has continued to drag on without a definitive resolution in sight. FXB appeared to have hit a bottom in March of this year when it stabilized just below $148 a share; the ETF went onto stage a steep rebound, charging as high as $154 a share in less than two months. As the chart below reveals, however, profit-taking pressures have kept FXB underneath its 200-day moving average (yellow line) on two occasions this year, with its most recent clash with resistance taking place in mid-June .

Click to EnlargeThis ETF is now trading at the same support level (red line) that it carved out for itself in early March of 2013 when it hit a 52-week low of $146.85 a share. While taking a long position at current levels is very lucrative, we advise conservative investors to hold off because a break below this support can welcome accelerating selling pressures as automatic stop-losses are triggered .

Outlook

If the latest U.K. GDP estimate suggests stronger-than-expected economic growth, then the FXB should have the wind at its back for the day; in terms of upside, the next resistance level comes in at around $150 a share. On the other hand, bearish GDP expectations could take FXB to new lows below support at the $147 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Follow me on Twitter @SBojinov

Disclosure: No positions at time of writing.

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