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The sterling saw a glimmer of sunshine in the last week following the rally in the other riskier assets. Equities and slightly better economic data supported the gains in the pound. The gain was however, limited as demand for riskier assets remained lower towards the end of the week. The Pound ended higher by 0.80% to close at 1.5748
Last week saw the pound gains for a second consecutive week amidst a gain for riskier assets. For the coming week we could see the pound follow a broader trend and rise in the wake of its larger counterpart the Euro. With the sentiments improving and investors pinning hopes that the Euro crisis could ease with efforts of the ECB.
This week more traders will be focused on the Olympics then the currency markets in the UK, but from its own economy we have the Bank of England’s August meeting on Thursday. Although the BOE is expected to keep the rates unchanged and a lid on the bond purchase programme, the major moves would be seen in way ECB treats its policy action. No one within consensus expects further policy action from the Bank of England measured by rate cuts or another increase in the asset purchase target, and it’s likely too soon after the last easing that included the relatively novel funding-for-lending style of program to expect additional stimulus at this juncture. UK GDP growth did disappoint for Q2, but judgment on the sustainability of disappointments might be reserved in light of technical distortions in Q2 such as an extra holiday for the Jubilee festivities, even more than usual rain.
Apart from the BOE’s meet we have the PMI numbers which could be slightly positive and could surprise the pound as well. So we could expect the pound to remain in a slight positive bias for the coming week.
It was third consecutive week for the GBP to trade higher and close on positive note. Last week the pair had surged by 0.82% W/W and finally closed at 1.5746. Currently Pound is witnessing stiff resistance around 1.580 of 50 percent Fibonacci retracement level for range (1.6310-1.2651). This week, if the pair manages to breach resistance of 1.5800 then it may test next resistance level of 1.5910 which is 61.8% retracement level for the same range. Momentum indicator RSI-14 is hovering at 0.50 and is showing potential towards upside. If the pair once again fails to breach the resistance of 1.5800 then we expect it to trading a range (1.5750-1.5580). For this week supports are at 1.5660 then 1.5580 then resistance are evident at 1.5800 then 1.5900.
Investors in the UK should be a jovial mood this week, as excitement and good wishes from the Olympics will set the frame of mind.