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Sterling Drops Further as MACD Generates Sell Signal

David Becker
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The GBPUSD continued its descent, more than reversing yesterday’s post-FOMC minutes gain in the. A breach of 1.7085 would target support near 1.7060, which coincides with the 20-day moving average. U.K. trade today came in worse than expected with the total deficit rising to GBP 2.42 billion. The BoE’s MPC is widely expected to announce unchanged policy later, which should be a non-event.

Weak housing price data helped erode Sterling. U.K. RICS house price measure slowed in June, with the headline balance declining to +53 from +56 in May. RICS report a shift in the demand and supply dynamics. Yesterday’s Halifax price index fell 0.6% month over month. A pronounced tail-off in mortgage approvals in recent months has been portending a cooling in prices, and these data are perhaps an early sign that this is happening. The decline in mortgage approvals in turn reflects the rising odds of a BoE interest rate hike.

The U.K.’s mercantile trade deficit widened to GBP 9.2 billion in May from a deficit of GBP 8.8 billion in April. This was worse than the median forecast for GBP 8.75 billion. Aircraft imports worth GBP 1.2 billion impacted. The overall trade position was a deficit of GBP 2.42 billion, up from GBP 2.05 billion in April. Exports rose 0.6% on the month while imports increased 1.7%.

Momentum on the GBPUSD has turned negative, as the MACD (moving average convergence divergence) index has generated a sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal. The RSI has moved lower with price action reflecting accelerating negative momentum while printing near 63, which is the upper end of the neutral range.

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