The British pound has climbed significantly higher in the last three trading sessions, helped along by comments from Bank of England governor Mark Carney and now the currency is pushing up against a critical support level with a number of other technical factors come into play.
During a meeting in Portugal governor Carney noted that if the economy continued to improve, monetary stimulus would be reduced or completely removed, which had investors predicting that a rate hike was coming in the nearest future.
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” Carney said at the Forum on Wednesday in Sintra, Portugal.
“When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove,” he said. “Moreover, with domestic inflationary pressures, particularly wages and unit labor costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.” He added.
As we can see by the chart, the pound has come up against resistance at the $1.30 level in todays trading which it also encountered in May, and we may be seeing the formation of a double top, which is backed up by a retracement to the 100 Fibonacci level which is certainly in overbought territory.
A reversal may see a pull back to around the $128.80 level where the British currency may find some support at the 61 Fibonacci level. This was also a strong support level in the week of the 10th – 15th of May.
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