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Sterling Breaks Out; GDP in the Spot Light

David Becker
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Sterling Breaks Out; GDP in the Spot Light

Sterling broke out of its current range on Monday and is poised to test higher levels as traders look forward to Tuesday’s look at Growth Domestic Product. Reports that large hedge funds were purchasing both Cable and the Euro despite continued talk of sanction for Russia have caught the FX market by surprise.

With Pfizer (NYSE:PFE) the large US Pharmaceutical company said to be nearing a deal to buy the U.K.’s AstraZeneca (NYSE:AZN) , which would be the biggest takeover of a British firm on record if it went through, there is the chance that approximately 50 billion in cable will need to be hedge prior to the transaction.

In economic news, the Hometrack April house price figure also came in above expectations at +0.6% month over month and 6.0% year over year. The news helped sterling move higher to a peak of 1.6854 breaking out above the recent top end of the consolidation range.

The first estimate of U.K. Q1 GDP is up Tuesday, which we expect at +0.9% quarter over quarter and 3.2% year over year according to economists estimates. This is up from respective 0.7% and 2.7% outcomes in Q4 data.

The GBPUSD is breaking out on solid momentum as the relative strength index (RSI) moves higher with price action. The RSI is an oscillator that measures overbought and oversold levels along with momentum. The RSI is testing resistance levels and a closing level above 66, would point to higher future price action.

The MACD (moving average convergence divergence) index on the other hand is printing in positive territory but the trajectory of the index is relatively flat. One would expected the MACD to begin to move higher as the spread divergence from the 9-day moving average of the spread.

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