Sterling Breaks Out on Carney Remarks, A Close above 1.70 is a Prudent Buy Point
Sterling surged against the greenback, and is poised to test resistance levels near the April highs at 1.70. The upward movement in GBPUSD came after BoE’s Carney remarks that interest rates “could rise sooner than markets currently expect,”. Cable spike over two big figures to a high of 1.6992, stalling just four pips short of Aprils major trend peak, while EURGBP dove below 0.8000.
A drop in U.S. Treasury yields weighed on the dollar, with the 10-year T-note yield spread over Bunds now at 121.9 basis points, down from near 125.0 basis points levels that were seen yesterday.
BoE’s Carney delivered an unexpected hawkish message at the keynote Mansion House speech on Thursday. He said that interest rates “could rise sooner than markets currently expect,” and that the housing market was now “the greatest risk to the domestic economy.” This will invite markets to re-price a 25 basis point hike before year-end.
Carney’s comments also chime with recent remarks by his MPC colleague, Weale, who has argued that small, incremental rate rises would be better started sooner rather than later if potentially disrupting bigger and more sudden tightening’s were to be avoided further down the road. Chancellor Osborne, at the same venue, also announced the expected new powers for the BoE to restrict mortgage lending.
Sterling sliced through trend line resistance but was unable to push through resistance near 1.70. Support is seen near the 10-day moving average near 1.68. Momentum on the currency pair has turned 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 index moved from negative to positive territory confirming the buy signal.
Traders should consider waiting for a close above 1.70 before purchasing the currency pair.
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