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Sterling Technicals Test Breakout; BOE Could Halt Momentum

David Becker
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Sterling Technicals Test Breakout; BOE Could Halt Momentum

Tuesday’s stronger than expected Industrial Output and Manufacturing put a jolt into the GBPUSD exchanged rate, pushing the currency pair up 1%, ahead of Thursday’s Bank of England monetary policy meeting. The squeeze in the currency pair was led by decline in short sterling futures which back up immediately following the number. Trader will now focus on the Bank of England meeting scheduled for Thursday. Hawkish comments from the central bank could be the impetuous which drives the currency pair above resistance levels.

The UK reported a 0.9% increase in industrial output, the strongest in eight months. This compares to consensus forecast a 0.3% rise in UK’s February industrial output and manufacturing. Manufacturing output jumped 1%.

On Wednesday the UK will release data on its trade balance. This number should do little to move the currency market. On Thursday the Bank of England will meet to discuss interest rates and their asset purchase program. The central bank has been anything but dovish and comments that pinpoint a potential date when the BOE could begin to the process of tightening rates will help lift the GBPUSD above resistance.

Sterling rose to trend line resistance which has been created by a downward sloping trend line that connect the highs in February to the highs in March and comes in near 1.6720. A close above this level would likely lead to a test of the February highs near 1.68. Support on the currency pair is seen near the 10-day moving average near 1.6625.

Momentum on the currency pair is turning positive, as the MACD (moving average convergence divergence) index generated 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) soared higher with price action reflecting accelerating positive momentum while printing near 61, which is on the upper end of the neutral range.

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