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Sterling supported by Carney’s comments

The sterling remains one of the most interesting currencies to watch right now as the latest economic data suggests a rate hike is nowhere near fruition.

Sterling
Source: Bloomberg

Yesterday we saw home loan approvals disappoint, adding to the recent downgrade to inflation expectations. Meanwhile, BoE Governor Mark Carney spoke and suggested the MPC’s discussions have been about the pace, timing and degree of tightening policy. In fact, there had been no discussion about the possibility of further easing.

Given the backlash the UK economy is likely to get from a struggling Eurozone, it appears the central bank could be underestimating the potential impact. Additionally, the recent weakness in the sterling suggests there is a disconnect between the market and the MPC right now. From a price action perspective, cable closed below the 61.8% retracement of the July 2013 to July 2014 rally, coming in at $1.5722.

There is also a downtrend resistance line which can be drawn from July 2013 highs that has capped any recovery over the past six months. I feel any moves into $1.5800 – where this downtrend comes in – will be a good selling opportunity. Near-term targets would be to November lows in the $1.5600 region.

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