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The Pound is Poised to Break Out

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The Pound is Poised to Break Out

Sterling continues to remain buoyed and is poised to test higher levels despite a recent drop in UK longer term yields which have pushed the interest rate differential in favor of the greenback. Last week’s stronger than expected claimant count and relatively benign inflation report, have given the BOE room to maneuver. Data in the US for October has been mixed.

The 10-year yield differential which is generally highly correlated to the currency pair has broken away as Gilts have rallied relative to the US 10-year note. US treasuries sold off heavily at the end of last week, but have since rebounded, but not as quickly as UK gilts. The yield differential, which is the difference between the two countries interest rates, declined from 5 basis points in the UK’s favor to 15 basis points in the US’s favor.

Sterling continues to press up against resistance levels which are seen near the October highs near 1.6250. A close above this level would lead to a test of target resistance near 1.67. Support on the currency pair is near the 10-day moving average at 1.6060.

Momentum on the GBPUSD currency pair is positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD moved from negative to positive territory confirming the buy signal. The relative strength index (RSI) moved higher above its own resistance, and is printing near 57 which is the upper end of the neutral range.

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