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Employment will Drive Pound in the Week Ahead

H.S. Borji
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Employment will Drive Pound in the Week Ahead

Sterling has enjoyed a strong ride during the latter portion of 2013 but has not received the catalyst needed to drive the currency pair above resistance. Prices have consolidated forming a stretched out flag pattern that should refresh if the fundamentals can carry the currency to new highs.

The Bank of England is likely the most hawkish of the central banks and needs economic data to improve from current levels to switch to a neutral stance, which would help the pound push above resistance levels and allow technical analysts to jump on board the sterling train.

On Wednesday of this week, the UK will release the employment report and the budget which are the highlights for the week. The market expects another 25k drop in the claimant count, which is about average -27K level over the past 12 months. The claimant count is similar to the US jobless claims number, and is a key driver of reflecting the overall jobs picture. The unemployment rate is expected to hold steady at 7.2%, just above the BOE’s 7.0% threshold, for which it too has moved to a more qualitative stance approach.

Price action is hovering slightly below the 10-day moving average, but a stronger than expected number could drive prices above resistance near 1.68 and that would generate a breakout that could push the pound up to 1.73, which coincides with weekly resistance levels.

At the moment, momentum is negative and flat as the GBPUSD consolidates waiting for an impetus such as employment. Additionally, the RSI (relative strength index) is printing near 50, which is in the middle of the neutral range and also reflects consolidation.

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