The Pound was able to gain traction on Tuesday as investors shied away from the greenback on the heels of continued failure of the US congress to come up with an agreement that would reopen the government. The US treasury will run out of capital on October 17, 2013, with its first substantial payment due on October 31, 2013. A default by the US government would rock the financial markets increasing volatility and reducing the value of the US dollar.
The strength in Cable has also been a function of stronger than expected economic data, and increasing inflation expectations. Tuesday report by the UK government showed that year over year CPI increased by 2.7% compared to the 2.6% expected by economists. Later in the week the UK will report its claimant count and its unemployment rate which will give investors a view of labor cost inflation, as well as, the potential for a tightening labor force. YBS will report on its House Price Index and additionally, the UK will report retail sales which will help gauge overall consumer sentiment.
Another important currency related piece of news is that the UK and China have reached some agreements today with regard to currency trading. China has granted the UK a 8 billion QFII quota. The UK has become the most important offshore center yuan trading, after Hong Kong. It accounts for a little more than 60% of yuan trading outside of China and Hong Kong, according to SWIFT.
Late in the US trading session, US Senators announced that they would suspend discussions until the House was able to come up with a new proposal on handling the debt issue. The House has been coming up with new provisions to handle Obama care, which would likely not pass through the Senate or the White House. At the end of the day on Tuesday, there were no deals in the works, and the likelihood of passing a bill before the October 17thdeadline is relatively small.
The technical outlook for the pound is mixed. Support is seen near and upward sloping trend line that connects the low seen in July, August and September and then the recent lows at 1.5920. Resistance on sterling is seen near the 10-day moving average at 1.6046.
Momentum on the GBP/USD currency pair is negative with the MACD (moving average convergence divergence) index printing in negative territory with a negative trajectory. The MACD measures momentum by viewing the difference of two moving averages and then comparing that difference to the moving average of the difference. The MACD generated a sell signal on the pound in early October where the index moved from positive territory to negative territory. The relative strength index (RSI) reflects consolidation as it is printing at 52 which is in the middle of the neutral range.
By Marcus Holland from ForexBonus.co.uk.