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Sterling Poised to Test 2013 Highs

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Sterling Poised to Test 2013 Highs

Sterling continued to rack up gains in the last month of the year as the yield differential favor the pounds. While stronger than expected data hit the tapes in the UK on Monday, Tuesday followed suit reflecting the strength in the UK economy on Tuesday. US yields moved closer to the 2.8% level in the 10-year space, but this was easily matched by the rise in yields in the UK.

The UK followed up yesterday’s strong manufacturing PMI with an even stronger construction PMI on Tuesday. The 62.6 reading was very robust good. It is encouraging the market to price in increasing odds of a rate hike by early 2015 as reflected in the short-sterling futures contracts. It leaves Wednesday’s services PMI to round out the PMI data that will point to an acceleration of the UK economy into the end of the year. The market shrugged off the poor BRC same store sales report which printed at 0.6% it is at the lows since seasonal decline in April. The 10-year yield differential remains subdued edging higher but still close to par.

Sterling rallied and is poised to test the weekly highs near 1.67. Support is seen near the 10-day moving average at 1.6260. Momentum on the currency pair is robust as the MACD (moving average convergence divergence) index is printing in positive territory with an upward sloping trajectory. Momentum can continue to climb testing the highs generated in June of 2013. The relative strength index made a new high for the move reflecting an acceleration of momentum. The 69 print is very close to the overbought trigger level of 70, which could foreshadow a correction for the currency pair in the near future.

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