Cable strengthen in the wake of the services purchasing managers data, which beat expectations in mostly reversing unexpected weakness in December, similar to the patter seen in the manufacturing and construction surveys. Sterling has traded to a high of 1.5194 after gaining nearly 30 pips on the data, though selling ahead of 1.5200 put a cap on the GBP/USD exchange rate.
UK Markit January services PMI report was stronger than expected, reversing unexpected weakness in December, similar to the patter seen in the manufacturing and construction surveys. The services headline rose to 57.2 from December’s 19-month low at 55.8 and above the median forecast of 56.5, though short of the 58.6 reading that was seen in November.
The composite PMI rose to 56.9 in January, up from December’s 55.4, which was the lowest since May 2013, but off the 57.8 level seen in November. Overall, the January PMI data have reversed a good portion of unexpected weakness in December, and points to encouraging growth momentum in Q1. Markit estimates that the UK economy is growing at a slightly faster pace than in Q4, which saw GDP rise 0.5%.
Sterling gained traction against the Euro despite stronger than expected EU retail sales. Eurozone retail sales jumped 2.8% year over year in December 2014, with sales up 0.3% month over month. The annual rate is the strongest since March 2007 and shows the increase in disposable income facilitated by lower oil prices are driving shoppers to stores.
The GBP/USD is forming a bottom, and trading above the 10-day moving average near 1.5090. Momentum has turned positive as the MACD (moving average convergence divergence) index is printing in positive territory after generating a buy signal in late January. The RSI is moving higher with price action also reflecting accelerating positive momentum.
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