Sterling Test Resistance as Fundamental Backdrop Remains Positive


Cable tested resistance near 1.5910 but was unable to break last week’s highs at 1.5930, and dropped back toward the mid 1.58 level. Last week’s seven-month high at 1.5930. The pound looks to be in process of establishing a broadly higher trading range following a number of bullish developments last week. Stronger than expected UK retail sales, a surge in wage data, a hawkish shift in the June BoE MPC minutes and remarks from BoE Governor Carney that the margin of slack in the economy has narrowed, have all sparked a reconsideration in markets of BoE tightening prospects. This combined with dovish Federal Reserve comments helped lift the pound.

This week’s agenda should be reaffirming of this theme, with the June CBI surveys on industrial trends which is scheduled for Tuesday and retail sector which is scheduled for Thursday highlighting on the data front, while the testimony of BoE MPC members which is also scheduled for Tuesday and the BoE’s latest Financial Stability Report which is scheduled for Wednesday highlights on the policy front.

Sterling lost ground to the Euro on the heels of a fresh proposal sent Monday morning by the Greek governments which could be the basis of a compromise in coming days. The new proposal reported proposes to lift the retirement age to 67 and streamline various exemptions. Main VAT rate set at 23%, 13% for energy and basic foods, 6% for medicine and books. According to the report creditors are unlikely to formulate a common position Monday and a few more days will be needed for clarifications. France Hollande meanwhile said France and Germany are doing everything they can to keep Greece in Eurozone and EU.

Cable continues to trade above last week’s break out level, above long term trend line resistance which was breeched. Momentum is positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory.

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