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Sterling higher on solid employment data

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Sterling higher on solid employment data

Sterling continues to perform better than most major currencies, lifting off of support levels despite strength in US yields.  Better than expected employment data combined with softer than expected US inflation information gave a boost to the pound on Wednesday.

A surprise that initially created volatility with the UK currency came when the minutes were released during the European morning trading session. The minutes of the recent MPC meeting revealed that Weale dissented, preferring a shorter period of guidance. Weale wanted to limited forward guidance of 18 months to 2 years.

After moving lower on the minutes news, the pound snapped back after a better than expected employment report. The claimant count fell 29,200 and the June decline was revised to show a decline of 29,400, from 21,200. Average weekly earnings, rose 2.1% showing labor cost inflation. The ILO measure of unemployment was unchanged at 7.8%.

The yield differential between the UK and the US moved in the UK’s favor and is poised to push above trend line resistance.  The increase in the differential to -10 basis points, makes holding the pound more attractive.

Sterling is poised to test resistance levels near 1.5580.  A close above this level would likely generate a test of the June highs near 1.5760.  Support on the GBPUSD currency pair is seen near the 10-day moving average at 1.5405.

With the 10-day moving average recently crossing above the 50-day moving average, a short term trend is considered in place.  Momentum is steady and positive with the MACD (moving average convergence divergence), which is an index that measures moving average momentum, is printing in positive territory with an upward trajectory.  The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 60 which is on the upper end of the neutral range.

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