Thursday, February 13, 2014

A ‘Sterling’ day for the Pound | Will it march through the Moving Average?

The Pound Sterling had a very good day yesterday. The reason was a report by the Monetary Policy Committee of the Bank of England to the effect that its estimation of future economic growth in the UK has had to be revised significantly upward. The governor of the Bank also indicated that his policy of “Forward Guidance” would be modified somewhat in order to take into account the fact that unemployment, which had previously been the sole criterion for policy decisions, needed to be supplemented by other measures when it came to decision making.

However, Mr. Carney did say that Forward Guidance was working. According to him, it had allowed businesses and private individuals to plan better. As Mandy Rice-Davies said during a trial concerning the Profumo Affair in the ‘Sixties, “He would say that, wouldn’t he?”. Forward Guidance was Mr. Carney’s Big Idea when he became BoE governor in mid 2013 (you can read about Ms. Rice-Davies and the Profumo Affair here).

Will it march through the Moving Average resistance barrier?

On Jan 30th last we highlighted the fact that Cable, as the pound / US dollar pair is known, was once again approaching the 200 period Simple Moving Average (SMA) on the monthly chart. This Technical Indicator has acted as an efficient resistance to its rise in the past, ever since the dramatic tumble following the Global Financial Crisis:

There are now reasons to suspect that this resistance might well be breached in the coming sessions. The UK is coming ever closer to the point where interest rates might have to rise. Inflation, while now contained near the 2% level that all economist seem to believe is optimum, is nevertheless a long way from the low rates that pertain in other major economies, where the dread of deflation is keeping Central Bankers awake at night.

UK unemployment has fallen much faster than expected. GDP is on the rise and has been forecast, as mentioned above, to rise at an even higher rate in the future. Property prices, especially housing, are growing steadily and a real-estate bubble cannot be ruled out in some areas.

We will be keeping a close eye on the level of the 200 period Simple Moving Average on the monthly chart for GBPUSD.

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