18.09.201306:48:05UTC+00Pound weakness revealed in rally deemed illusory

The pound’s uptrend to an eight-month high is seen at risk in trading patterns proposing economic data surpassing predictions was unsuccessful to reflect a fundamental shift in the U.K.’s targets.

“There are enough warning signals to suggest that this is the time to exit long-sterling positions,” Karen Jones, a London-based technical strategist at Commerzbank AG, said in a phone interview yesterday.

Unemployment Declines

Sterling skyrocketed to $1.5963 on Sept. 16, the highest level since Jan. 18, and was at $1.5904 yesterday in London.

‘Surprise Factor’

U.K. services developed the most since 2006 in August, a Purchasing Managers Index showed on Sept. 4. Citigroup’s Surprise Index for the country soared to 113.3 on Aug. 19, from minus 33 in May, and was at 72.7 yesterday. A positive reading suggests economic releases have been generally better than economists’ estimates in Bloomberg surveys.

Bank of England Governor Mark Carney said in August that policy makers plan to hold the benchmark interest rate at a record-low 0.5 percent until unemployment falls to a pre-set threshold of 7 percent. Lower borrowing costs tend to lead to a weaker currency. Minutes of the central bank’s last meeting are scheduled to be released today.

“Data out of the U.K. has been mostly on the strong side, and soon enough it’s fair to assume that the surprise factor will go away,” Dag Muller, a technical strategist at SEB AB in Stockholm, said in a Sept. 17 phone interview. “The market will revise up expectations and surprises will be less positive, which poses a risk.”

The “k-line” of the pound’s stochastics measure, which measures current price relative to highs and lows, fell below the currency’s five-day moving average, known as the “d-line” on Sept. 16, data compiled by Bloomberg show.

That signals the pound has uptrend too far, too fast against the dollar and could be set to reverse. The pound’s relative strength index climbed to 81.6 percent yesterday, above the 70 threshold that signals a reversal.

“The pound has risen quite fast,” said SEB’s Muller. “We’re calling for a couple of big figures lower from here.”