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Sterling Breaks Out on Strong Momentum

David Becker
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Sterling Breaks Out on Strong Momentum

The GBPUSD broke out on Thursday moving up to 2014 highs following the FOMC decision to keep interest rates low for the foreseeable further. The statement from the Fed was as expected, and in her press conference, the Fed chair Janet Yellen dismissed recent increases in headline inflation as transitory. Treasury yields tumbled following the Fed meeting allowing the interest rate differential to move in favor of the pound.

In economic news, U.K. official retail sales came in shy of expectations, with the headline figure declining 0.5%, the first month over month drop in four months, and the year over year figure rising 3.8% year over year, below the 4.2% median forecast. A 2.4% month over month drop in food sales accounted for the disappointed, with non-food sales rising 2.2% on the month. The smoother three-month figures were better, coming in at +4.9%, which reaffirms the positive underlying trend.

Additionally, the U.K. June CBI industrial trends survey above forecasts at +11% in the headline total orders balance, meaning that a net 11% of firms surveyed reported above-normal orders. This is up from zero in May and is the highest balance since the +12% 18-year high of December last year. The median forecast had been for 2%. The export orders balance rose to -2% from -9%, above forecasts and comfortably the long-run average of -20%. Output inflation expectations remain subdued, with only a net +3% of companies expecting a rise in output prices, down from 4% in May. Expectations for the coming quarter were solid, with a balance of +32% expecting increased activity, unchanged from the April level. Overall, the report signals continuing economic recovery into Q3.

Sterling broke above its current range making a new high for 2014. Momentum is strong with the MACD (moving average convergence divergence) index hitting its highest point in the last 12-months. The upward trajectory of the MACD point to higher future prices.

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