Sterling Rallies Following Inflation Report; Traders Await Wage Data

Sterling moved higher against both the dollar and the Euro following UK inflation data, with headline CPI matching expectations in dipping to 0.0% in June from +0.1% year over year, which will give the Bank of England the flexibility it needs to keep its policy unchanged. Wednesday’s monthly labor data may be more of interest as it is likely to show a jump in average wages, which is a metric being closely monitored by BoE monetary policy committee members. Cable logged a two-day low at 1.5450 ahead of the data and has since moved higher.

The EUR/GBP is testing support as sterling gains strength, and the Euro slumps. Greek PM Tsipras is facing growing dissent within his ruling coalition ahead of the crucial vote on the latest bailout deal on Wednesday. Tsipras is set to submit a bill that contains a controversial increase in the sales tax as well as pension cuts. A large number of lawmakers from Syriza as well as the Independent Greek Party already said they will vote against the legislation, leaving Tsipras to rely on opposition parties. The central scenario is that the vote will go through, thus paving the way for official bailout talks, but Tsipras and his Syriza government may not survive the sudden turnaround after the referendum.

The EUR/GBP is poised to test the June low which are 52-week low at 0.6990, as momentum turns negative. 0.7125. Resistance is seen near the 10-day moving average at The MACD (moving average convergence divergence) index has generated a sell signal as 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.

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