Dec 01 2017

GBPUSD – Inching towards trend channel resistance

Fundamental Factors for Sterling Rally:-

 

Pound started its rally after Bank of England (BoE) decided on 02 Nov 2017 to increase interest rates for the first time in a decade. Specifically, the BoE increased the benchmark interest rate from a record low of 0.25% to 0.50%. This is the first increase since July 2007 when rates were increased to 5.75% and effectively reverses the last rate cut in the wake of the Brexit referendum when the Bank was concerned about uncertainty affecting the British economy.

 

The European Union has agreed a financial settlement with Britain, a senior EU official told Reuters yesterday, under which London has committed to paying a set share of EU budgets after Britain has left the bloc.” A senior EU official told the Guardian that the UK seemed ready to honor its share of the EU’s unpaid bills accumulated over 44 years of membership, which include loans, pensions, and other liabilities. The final sum would be 53 to 58 billion pounds. Overall, the EU side was “optimistic” that agreement could be reached on the conditions to allow EU leaders to agree during a Dec. 14-15 summit to open talks on post-Brexit relations.

 

The UK manufacturing sector expanded at a faster rate than expected in November, easing concerns over the economy. Research group IHS Markit reported that its Purchasing Managers’ Index for the UK manufacturing sector, rose to 58.2 in November, its highest level since August 2013. Economists had predicted a reading of 56.5, from October’s rate of 56.6, which was revised up from 56.3. On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.

 

The UK economy expanded as expected in the third quarter, official data confirmed on 23 November. In a report, the Office for National Statistics (ONS) said gross domestic product expanded by a seasonally adjusted 0.4% in the three months ended September 30. Year-over-year, UK economic growth expanded 1.5% in the third quarter, matching the prior quarter’s growth. The numbers were in line with the first estimates.

 

Technical Analysis(What’s on charts):-

 

On a weekly the pair GBPUSD is trading in an upward sloping trend channel – following the proper higher highs and higher lows. Looking at the below chart, trend channel is highlighted by solid trend-lines(Blue(Support) and Orange(Resistance) ). At present GBPUSD is trying to reach its trend channel resistance zone(Orange Line) which ends at around 1.3657 mark, or we can say an attempt towards its previous peak marked on the weekly chart on 16 September 2017. After an attempt towards 1.3657 level a correction/retracement is expected to test back the channel support zone, which currently lying at around 1.3240 mark. Momentum indicators Slow Stochastic(63.94) and 14-Day Relative Strength Index(RSI 61.19) are inching towards their oversold territory(80 and 70 respectively). Directional index ADX(19.61) started giving its strength to the recent rally and MACD has crossed over the Signal line above zero-line.