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Sterling Declines after Disappointing Data

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Sterling Declines after Disappointing Data

Sterling edged lower on Thursday but remained elevated relative to the greenback, holding support levels.  Interest rate differential continue to favor the pound as the Bank of England has conveyed a message to the markets that no additional stimulus is needed for UK growth to accelerate.

On the data front, UK’s final second quarter GDP came in slightly lower than expected and current account deficit also disappointed.  Growth Domestic Product grew 0.7% quarter over quarter, as expected, but the year over year growth was revised lower from 1.5% to 1.3%.

The second quarter current account deficit declined in the second quarter, but only to 13 billion pounds, versus expectations for a deficit of 11 billion.  This weighed on sterling, leaving a sustained break above the $1.61 level against the dollar still beyond reach.

In the US, there were a number of data points that pointed to a mixed economic picture.  While Q2 GDP remained unchanged, jobless claims declined by 5K to 305K which was better than expected.  Pending Home sales on the other hand declined by 1.6%, worse than the slight gain expected by economists.

The currency pair remained buoyed above support near the 10-day moving average at 1.60.  Short term resistance is seen near 1.61, while target resistance on a weekly basis is seen near 1.63.  The currency pair still has not yet retested the breakout level of 1.57.

Momentum on the currency pair is flattening.  Although the MACD is still printing in positive territory the trajectory of the spread (the 12-day moving average minus the 26-day moving average) relative to the 9-day moving average of the spread is converging.

The relative strength index (RSI), which is an oscillator that measures overbought and oversold levels is printing near 67 which is on the upper end of the neutral range, but is now printing below the overbought level in which it remain for nearly 2 weeks.

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