Sterling Slips After Weak Industrial Production
Currency markets were subdued on Wednesday after President Barack Obama nominated Janet Yellen the current Vice Chair of the Fed to be the next Chairwoman of the Federal Reserve. The announcement helped reduce uncertainty and volatility and the nomination will now move forward to the Senate for confirmation.
Negotiations over a continuing resolution remain in a stale mate as the Administration and the House Republicans are deadlocked over how to move forward. The first payment from the US Treasury that will need attention is at the end of October, which if missed the US would default on a payment.
Despite begin known as a dovish central banker, the dollar rallied on the news that Yellen would be the next Fed Chairwoman. Congress will likely move slowly on this nomination but it is possible that Bernanke’s last meeting is the mid-December and Yellen’s first is the end of January 2014.
The Pound was under pressure on Wednesday reversing recent gains, after the UK released worse than expected manufacturing data. Industrial production in the UK fell 1.1% in August. The market had expected a 0.4% increase. Manufacturing declined 1.2%. Additionally, the UK reported a larger than expected trade deficit of 9.6 billion pounds compared to a 9.0 billion pounds.
Sterling declined more than 1.5 big figures on Wednesday after the worse than expected IP data quickly testing support created by an upward sloping trend line that connected the lows from July, August and September. Resistance is seen near the 10-day moving average at 1.6110.
Momentum on the currency pair is negative with the MACD (moving average convergence divergence) generating a sell signal in early October. This occurs when 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 relative strength (RSI) is printing near 50 which is in the middle of the neutral range reflecting consolidation.
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