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Sterling Breaks Lower Despite Solid Construction Data

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Sterling Breaks Lower Despite Solid Construction Data

Sterling was under pressure on Friday as the dollar gain traction ahead of the Fed meeting scheduled for December 17 and 18. The yield differential moved in favor of the greenback as bond yields backed up on stronger than expected US data. The UK reported construction output at 5.3% year over year vs. 1.3% consensus and a revised 8.2% in September which failed to buoy the pound.

On Thursday the Commerce Department released US retail sales were came in stronger than expected. All components were higher, and September and October months were revised higher as well. The portion of retail sales that is used in the GDP report rose 0.5% in November while October was revised up to 0.7% from 0.4% previously. The strength of US retail sales and the continued inventory build have prompted upward revisions to fourth quarter GDP forecasts.

The Fed is scheduled to meet next week to decide in interest rates and more importantly the current bond purchase program. Fed members are forbidden to make speeches as there is an embargo on Fed which remains in force ahead of the December 17/18 FOMC meeting. At that meeting, the Fed will update its economic projections and Bernanke will hold a press conference.

Over the coming weekend, HSBC flash China manufacturing PMI will be reported. This will be the first reading for December, and consensus is 50.9 vs. 50.8 final in November. Chinese growth is expected to remain robust throughout 2014, with GDP coming in near 7.5%.

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The cable sliced through support near the 10-day moving average at 1.6370 and is poised to test target resistance near 1.60. Resistance is seen near the recent highs at 1.64. Momentum is negative with the MACD (moving average convergence divergence) index generating a sell signal. 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 is moving lower with price action and printing near 52, which is the middle of the neutral range.

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