Sterling Has Mixed Results After Strong Economic Data; EURGBP Held Under Key Fib. Level

by on May 26, 2014 7:53 am BST

The Sterling has had mixed results following a strong retail sales report on Wednesday. The pound was higher for the fourth week against the euro but has remained weak against the greenback after declining from multi-year highs.

The pound has seen support since the Bank of England (BoE) said that the discussion on higher interest rates are becoming more balances, as the central bank saw strength in the economy but continue to worry about a potential housing bubble. Retail sales saw a 1.3 percent increase in April, which was much higher than analyst estimates of .4 percent. The United Kingdom’s second estimate gross domestic product figure came in at .8 percent that was in-line with analyst expectations.

Eimear Daly, head of market analysis at Monex Europe Ltd., said “I think the pound is going to get a lot higher against the euro.” This will likely be the case as the European Central Bank (ECB) tests the waters for additional stimulus, and this will further weaken the euro.

WK Chart of EURGBP

WK Chart of EURGBP

The euro has been on a steady downtrend against the pound, as EURGBP closed below the weekly 61.8 percent Fibonacci level for two consecutive weeks. The trend’s momentum has been rising with the ADX about to break 20. The – DMI has leveled off in early trade this week, but the divergence from the + DMI is expected to steepen.

Price action is held under psychological-significant .8100, while a close above this level would allow a retest of 61.8 percent Fib. level. However, the euro will likely continue to breakdown, and the EURGBP will go with it. Look for .7982 by mid-June.