GBP/USD – Trading the UK manufacturing production report

FX:GBPUSD   British Pound / U.S. Dollar
UK manufacturing and industrial production figures for March due for release today are likely to show contraction in the activity in annualized terms. A minor month-on-month rebound is expected. GBP/USD             pair is trading around 1.4450 levels after ended the previous day at 1.4439 levels.

Risk of a weaker-than-expected report

Manufacturing PMI for March released on April 1 had shown the pace of expansion in the activity was near seven month low. The sector remained in doldrums during the first quarter of this year and actually dipped into contraction territory in April.

Furthermore, UK trade deficit in the first quarter was highest since 2008. There was miniscule improvement in the March figures; courtesy of exports which increased by just GBP 500 million, led by chemical products.

Thus, overall there is a possibility of a much deeper annualized contraction in the activity that what is expected. This is also means the rebound in monthly figures may miss estimates. In such a case, GBP stands to looser, although it is worth noting that GBP/USD             pair had dropped on April 1 following the release of March PMI figures. However, major part of the drop was due to Brexit fears.

Hence, weak data could trigger a fresh sell-off in the pair towards its daily 100-SMA of 1.4362, which now coincides with rising trend line support. On the other hand, a positive surprise could help Sterling regain 1.45 handle.

Technicals – Strong support at 1.4362

Hourly Chart patternPennant formation

Support – 1.4444, 1.44, 1.4362

Resistance – 1.4456, 1.45-1.4514, 1.4549

  • Cable’s repeated failure yesterday to sustain above 1.4444 if followed by a bearish break from pennant formation would indicate continuation of the sell-off from the recent high of 1.4770.
  • Spot could drift lower to strong support at 1.4362 (daily 100-SMA + Rising trend line support on daily chart ). Such a break would also push hourly RSI below 50.00 and add credence to bearish motives.
  • On the higher side, a bullish break on hourly closing basis is essential to weaken bulls and expose resistance at 1.4514, which if breached shall open doors for 1.4549 levels.
  • A bearish break appears likely given multiple failures to sustain above 1.4444 levels.
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