Sterling Test Resistance of Momentum Remain Strong
The strength of the GBPUSD saw the currency pair climb slightly more than 2% against the US dollar in the past week before testing weekly resistance level. It was ostensibly bolstered by the rise short-term yields as the market responded positively to the BOE’s forward guidance. Over the course of the next week there will be a number of drivers that will likely generate volatility.
The UK reports CPI and unemployment during the week and these two data points will likely drive market action. The risk is for a higher than expected inflation figures that generates a year over year increase of up to 2.0% in December, while the unemployment rate is likely to be steady at 7.1%. The data, like the minutes from the recent BOE meeting, have likely been superseded by last week’s Quarterly Inflation Report, which broadened the central bank’s forward guidance, while maintaining the need to low rates for longer.
In the US the most of the important economic data in recent weeks could be reported below expectations. The pace of economic slowdown is prompting economists to slash Q1 GDP forecasts in half from earlier estimates to around 1.5%. The Empire State and Philly Fed surveys are expected to confirm the down shift in US growth. The main culprit is the weather which brought extreme cold and violent ice and snow storms to much of the eastern portion of the US.
Sterling edged higher on Monday early in the trading session but saw some profit taking as it reached weekly resistance near 1.6750. Support is seen near the 10-day moving average near 1.65. Momentum remains strong with the MACD (moving average convergence divergence) index generating a buy signal and printing in positive territory. The signal occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The RSI is moving higher with price action reflecting accelerating momentum while printing near 66, which is on the upper end of the neutral range.
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