by Jon Beddell
After twice bumping into a clear barrier at 1.6200 in early July we sold off four cents from the July 16th peak. Thursday’s market beating retail sales figures for June failed to help on Thursday, but the Pound was quick out of the blocks on Friday as second quarter GDP figures showed the UK economy grew at 1.1% in the second quarter, an improvement on the 0.3% first quarter figure and much better than analysts had expected. The much awaited European bank stress test results also arrived on Friday, showing that only 7 banks failed to make the cut, with all the UK banks passing. That helped sentiment, and Sterling managed to close higher for the first time in a few days. The problem with all this positive news is that it adds weight to the “global recovery” theory, which in turn gives the high yielding and commodity based currencies a boost. Even with the surprisingly strong GDP figures Sterling finds it hard to make much progress against the Loonie, especially with a background of monetary tightening in Canada contrasting starkly with the 8-1 “no change” vote that the UK’s monetary policy committee stuck to in July.
The big news from Canada last week was a widely expected rise in interest rates from 0.5% to 0.75%. Other data was actually on the weak side, with a surprise fall in retail sales, and a slowdown in consumer price inflation.
The technical outlook is positive. We are seeing higher lows forming on the chart every few weeks which means the Pound is almost in an uptrend. What would really help is if we could make a higher high! At the moment it seems that the 1.6200 level is a tough nut to crack, and until we capture that level we will remain cautious. For clients who require CAD and who have an appetite for risk, we recommend placing protective stop orders below 1.5425** and waiting to see if we have another stab at 1.6200 over the next few days.
** Suggested level based on the interbank rate. The rate you achieve will depend on the volume of currency traded.
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