Sterling Holds Steady after Weak Retail Data
The dollar eased toward the end of the week against most major currencies but the pound was unable to take advantage of weakening US yields. The data at the end of the week in the UK undermined the Pound’s strength, driving the yield differential in favor of the greenback. Fed Chair Nominee Janet Yellen testified in front of congress, and her comments were bullish for riskier assets. Next week the US will be reporting retail sales which will give investors a guide to end of the year sales.
The biggest economic surprise of the week was the unexpectedly large fall in UK October retail sales. The 0.7% decline compares with the consensus of a flat report. The year-over-year rate slipped to 1.8% from a revised 2.0% in September. Poor weather probably exaggerated the decline, but real wages continue to be squeezed, as Carney noted on Wednesday, and utility price hikes and rising transportation costs will further reduced discretionary purchasing power.
Sterling looked poised to test the recent highs at the beginning of the week but was unable to gain traction. Support on the currency pair is seen near the 10-day moving average at 1.6025. Resistance is seen near the recent highs at 1.6250. Momentum on the currency pair has flattened with the MACD (moving average convergence divergence index) printing near the zero index level. The spread (the 12-day moving average minus the 26-day moving average) is printing on top of the 9-day moving average of the spread. The RSI (relative strength index) which is an oscillator that measures the current close versus the last 14-day’s closes, is printing near 52, which is in the middle of the neutral range an reflect the consolidative ton of the GBP/USD.
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