Sterling’s Looming Breakout

<p>Sterling traders were distracted by today’s surprise appointment of Mark Carney to the helm of the Bank of England. The former head of the Bank […]</p>

Sterling traders were distracted by today’s surprise appointment of Mark Carney to the helm of the Bank of England. The former head of the Bank of Canada (& ex- Goldman Sachs banker) is known for his hawkish approach to monetary policy and hard currency inclination. He was unwilling to follow the rest of major central banks into quantitative easing and never ceded to exporters’ demand of easing policy despite the strong Canadian currency.

But just as Carney was starting to show more concern with Canada’s household sector imbalances, he takes his next step to a central bank, which had its share of accusations of being asleep at the wheel (reaction to Northern Rock, role during financial crisis and overseeing Barclays LIBOR role). 

Instead of making the easy speculation that a Carney-led Bank of England will lean on the hawkish side – following the departure of Mervyn King and ultra dovish Adam Posen, we take a look at the looming breakout in GBP/USD.

GBP/USD held up above the June trend line support which is now near a confluence of other key support levels –55-WMA (1.5806) and 200-WMA (1.5783).  While the price remains below the September trendline resistance, there is a growing probability for the upside to break out of the current ceiling as is signaled by favourable stochastics on the weeklies. GBP/USD may well first retest its 100-WMA of 1.5940s before mounting a renewed break above 1.6020 and onto 1.6160. The daily chart also presents its share of confluence levels of support, via the 100-DMA (1.5902) and 200-DMA (1.5858). These are expected to hold and present considerable sources of fresh bids for sterling.

This week’s revised report on Q3 GDP and Nov CBI survey on sales orders will show its share of volatility on the pair.

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