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Sterling Bounces After Solid Production and Retail Data

David Becker
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Sterling Bounces After Solid Production and Retail Data

Sterling hit a fresh 8-month low but then proceeded to bounce after the UK reported better than expected industrial production. The market seems pre-occupied with the potential for a Yes vote in Scotland on independence that is due following polls on September 18, 2014. U.S. interest rates continue to gain traction against its European counterparts, which has helped the dollar make new trend highs against the pound and the yen.

U.K. industrial production beat expectations in July, rising 0.5% month over month compared to a median of 0.3% and 1.7% year over year compared to median expectations of 1.4%, up from respective June outcomes of 0.3% and 1.2%. The narrower manufacturing output figures came in at +0.3% month over month and +2.2% year over year, the latter lifting from a 1.9% year over year gain in the previous month. The more timely August manufacturing PMI has also showed that activity is slowing due to stalling growth in the Eurozone.

Additionally, U.K. BRC retail sales came in above expectations in August at +2.7% year over year in the total sales figure, up from +1.3% in July and the best performance since January. The like-for-like figure rose 1.3%, beating the median for 0.5% and up from July’s 0.3%. Clothing and footwear sales drove the gain, offsetting a dip in food sales. The official retail sales figure for August will be releases on Sep-18., the same day as the Scottish independence vote.

Sterling bounced after hitting support near 1.6060. Momentum turned negative as the MACD (moving average convergence divergence) index generated a sell signal last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The RSI (relative strength index) is printing a reading of 18, well below the oversold trigger level and could foreshadow a correction.

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