Sterling Moves Higher on Strong Employment Data
Cable continues to be the best performing currency which is partially a function of solid economic data that continues to beat consensus estimates. Tuesday’s stronger than expected inflation data combined with Wednesday’s solid employment report have buoyed the currency pair toward resistance levels. The dollar has also been eroded by the fiscal brinkmanship in the US as the treasury is up against payment deadlines.
Sterling is the strongest of the major currencies, rising to its best level since October 9. The strength in cable comes from largest decline in the unemployment claimant count since mid-1997. The 41.7k decline, combined with the revision to the August print, puts the claimant count decline at twice the 25k that the consensus expected.
The unemployment rate, which is the BOE’s forward guidance target, remained at 7.7%. Yet the real disappointment with the report was that average weekly earnings which slipped to 0.7% in August from a revised 1.2% in July.
The fiscal brinkmanship in the US pushed Fitch credit rating agency to place US debt on negative credit watch. Fitch had expected the debt ceiling to be raised prior to the October 17 deadline and is sounding the warning alarms.
Sterling edged above resistance near the 10-day moving average at 1.6024, with support seen near the 40-day moving average at 1.5870. The price action seems to be forming a topping pattern that could be considered a small head and shoulders pattern which is viewed as a reversal pattern. Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index printing in negative territory with a negative trajectory. The relative strength index, which is an oscillator that measures overbought and oversold levels is printing at 55 which is in the middle of the neutral range.
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