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Sterling Breaks Out; Focus Turns to US PMI and Claim

David Becker
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Sterling Breaks Out; Focus Turns to US PMI and Claim

Cable broke out and hit a new trend peak of 1.6923 in the wake of the stellar manufacturing PMI data out of the U.K., though sub-expectations mortgage lending numbers offset this. Sterling dipped back to the 1.6900 area after the initial post-data pop.

U.K. manufacturing PMI much stronger than expected at 57.3 in April, up from 55.8 in March according to Markit. Economists had forecast a reading of 55.4, so this was an unusually big divergence between expectation and outcome. The components were good, including an eight-month high in the output index, and a rise in new orders on the back of demand from both the domestic and export markets.

The strong manufacturing data was offset by soft U.K. mortgage approvals weaker than expected, according to the latest BoE data for March. This is the second month that approvals have dipped, suggesting a pause after a recent surge in home lending activity. Approvals fell to 67.1k in March, the lowest since last September and from 69,592 in February.

Mortgage approvals in January were the highest since late 2007. The median forecast had been for 71.0k. Lending to non-financial businesses disappointed, once again, falling by GBP 2.3 billion, adding to February’s GBP 631 million decline. M4 money supply was weaker than expected, with the ex-intermediate other financial corporations figure dipping 0.1% m/m, the largest dip since April 2011.

Next up traders will be watching the US PMI reports which are scheduled to be released during the US AM. Economists expect manufacturing to decline to 53.5, from last month’s 53.7. Also on the docket are jobless claims which are expected to fall 11K to 318K.

Sterling pushed above trend line resistance, and is poised to test the weekly highs near 1.7040. Momentum is strong with the MACD printing in positive territory with an upward sloping trajectory. The RSI moved higher with price action reflecting accelerating positive momentum, which printing near 70, which is very close to the overbought trigger level.

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