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The Dollar gains traction after solid data

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The Dollar gains traction after solid data

The dollar moved higher during the early US trading session after the Bank of England left rates unchanged an did not release a statement along with their decision. Stronger than expected PMI data released earlier in the week, pushed US yields higher driving the yield differential between the UK and US in the dollars favor.

The Bank of England left its bond buying program unchanged Thursday amid signs that economic recovery in the U.K. is gaining traction. The BOE’s Monetary Policy Committee didn’t issue a statement explaining its decision, which put pressure on gilts.

In the US, the combination of a better than expected jobless claims report along with an in line ADP private payroll report, buoyed the dollar against the pound.  According to the Department of Labor, Jobless claims declined by 9,000 to 323,000 in the week ended Aug. 31.  Analysts had expected claims to come in near 332,000.

Sterling reverse course after testing resistance levels near 1.5750 after the BOE announced their non-action.  A close above this level would likely generate a breakout and a test of weekly resistance levels near the highs made in December 2012 at 1.63.  Support on the pound is seen near the 10-day moving average at 1.5559.

Momentum on the currency pair is strong with the MACD (moving average convergence divergence) index generating a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.  The index crossed from negative to positive territory confirming the buy signal.  The RSI (relative strength index) is moving higher with price action and is poised to test RSI resistance near 66, which is on the upper end of the neutral range.

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