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Sterling Moves Lower as Negative Momentum Accelerates

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Sterling Moves Lower as Negative Momentum Accelerates

Sterling moved lower on Tuesday and is poised to experience a short term correction targeting support levels near an upward sloping trend line. As tensions continue to brew in Crimea following last week’s parliament vote that would annex Crimea to Russia. The residents of the Ukrainian peninsula will vote on this matter over the coming weekend, which could generate even more tension and capital market volatility.

The UK reported a mixed industrial production report. The headline increase of 0.1% month over month was a little below expectations. However, the manufacturing component rose 0.4% compared with the consensus forecast of a 0.3% increase. On the consumer front, the BRC retail sales reportedly fell 1% in February, whereas the market expected a 0.6% increase. Several BOE officials testify before the parliament, but their general stance is known, and barring a surprise, is unlikely to change the market’s direction. The BOE is closer to neutral than accommodative, which should continue to buoy the GBP/USD.

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Sterling moved lower after the mixed industrial production report, slicing through support near the 10-day moving average at 1.6680. Resistance is now former support along with the recent highs near 1.68. Momentum on the currency pair has turned negative with the MACD (moving average convergence divergence) generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossing below the 9-day moving average of the spread. This index moved from positive to negative territory confirming the sell signal. The RSI (relative strength index) moved lower with price action reflecting accelerating negative momentum while printing near 48 which is in the middle of the neutral range.

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