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By HaleStewart December 10, 2013 8:40 am
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Pound/Dollar Chart Breaking Out Over UK Economic Strength

Above is a chart of the British Pound/US dollar chart.  From July until the beginning of October, the chart rose from 1.48 yo 1.62.  We see a consolidation between ~1.59 and 1.62 from early October until the end of of November.  During this time, the MACD dropped to a neutral reading.  It's best to think of this as giving the chart momemtum in the event of a breakout.  In addition, prices used the 20 day EMA as technical support.  Prices broke out in early December, moving through resistance a bit above the 1.63 level.

So -- why the move higher?  The UK economy has been printing some solid numbers relative to the US.  The latest Markit manufacturing numbers are some of the strongest in several years.  Industrial production recently increased .9% M/M and 2.2% YOY.  The Bank of England left rates unchaged at .5% in their latest meetiing, continuing monetary stumulus.  Aiding the bank is the steady rate of UK inflation:

Inflation has held steady in the upper 2% range for the last 12+ months of readings. 

And finally, the economy appears to be coming out of its period of slow-growth with some solid and improving GDP prints:

While GDP growth was in the barely positive category for five quaters, the last two readings (1.3% and 1.5%) show an improving trend.

We're far enough into the "good data" period from the UK to say that an expansion is clearly beginning.  Hopefully, the good numbers will continue.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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