Cable was settled in the morning around 1.3300 after dipping sharply yesterday, tracking EURUSD in part, while the pound itself saw specific selling. The losses put some distance in from the eight-session high that was logged at 1.3397, however the pair has been seen spiking higher initially on the anticipation of the UK Services PMI but afterwards on the beat of UK May Service PMI at 54 in the headline reading, after the 52.8 in the month prior.
UK’s data continue to surprise, for a 3rd time. As with both the May manufacturing and construction PMI surveys, which beat expectations as well at the headline level, the details of the report reveal caveats. New business volumes remain subdued, with Brexit-related uncertainty getting a specific mention from respondents, blaming it for holding back decision making among clients. At the same time, tight labour market conditions placed upward pressure on staff wages while associated difficulties in recruiting led to the second weakest increase in employment in the sector since March 2017. Business confidence moderated for a third time out of the last four months.
The rebound from today’s low at 1.3301 but significantly from the strong support at 61.8% Fibonacci retracement level since Friday’s rally, gives small signs of a reversal to long dift lower seen since mid April. The bigger picture for Cable remains bearish, as the pair remains in the lower daily Bollinger Bands pattern despite the latest 5 Daily positive sessions. Hence only a break above the 20-DAY MA at 1.3400, but more precisely above the strong resisatnce at 1.3450, should confirm a reversal to the upside for the CAble. The Daily momentum indicators, confirm that negative momentum still holds in long term, as RSI and MACD remain below neutral and in the oversold territory.
In short term, such as the hourly chart, the pair reached R1 at 1.3375, after breaking, the confluence of the 50.0% Fibonacci level and 50-period EMA. The momentum indicators turned positive, with RSI at 66, looking upwards, while the hourly MACD oscillator slipped above its trigger line in the negative area, something that suggest again that momentum is too weak to provide a sustained move lower, at least in short-term. Therefore, an hourly positive closing, near 1.3360 area, could take the price to the recent swing high at 1.3400 and to the next resistance at 1.3435. Immediate Support comes at 1.3300-1.3320. The Daily one comes at 1.3270.
Sterling rally today against the dollar in the wake of the data, is likely to keep the BoE on track to hike the repo rate by 25 bp as soon as the August MPC meeting. Meanwhile, the spike in wakes is something that will likely grab the attention of the BoE, which has signalled that diminishing slack in the economy, coupled with low productivity growth, has generated a need for gradual rate hikes.
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