Mid-Day Report: Sterling Retreats after Weak Production Data

Sterling pares back some of recent gains after weak economic data. Both industrial and manufacturing production came in worse than expected. Industrial production unexpectedly dropped -0.7% mom in May, following a revised 0.3% increase in the previous month. From a year ago, industrial production growth decelerated to 2.3% in May, from a downwardly revised 2.9% gain in April. Manufacturing production dropped -1.3% mom versus expectation of 0.4% mom rise. Expansion of manufacturing production eased to 3.7% yoy in May from 4.3%, down from previous estimate of 4.4%, in April. Production is expected to improve in coming months as indicated by strong readings in PMI. However, downside risks come from the pound as the strength of which should hurt the cost competitiveness of UK exports.

Also from UK, the British Chambers of Commerce urged BoE not to raise interest rates too soon. The BCC noted that “while we never like to report even modest declines in our investment and export balances, these are unsurprising, as the economy jolted forward last quarter and has now settled into a period of more stable growth.” And, “these results reinforce the case against the Bank of England making any hasty decisions on raising interest rates in the very short-term.”

Released from Swiss, CPI dropped -0.1% mom, rose 0.0% yoy in June versus expectation of 0.1% mom, 0.2% yoy. Retail sales dropped -0.6% yoy in May versus expectation of 1.5% yoy. The set of data reinforced the need for SNB to maintain the EUR/CHF floor at 1.2, which was imposed back in 2011. Released from Europe, German trade surplus expanded to EUR 18.8b in May.

BoJ deputy governor Nakaso said today that the central bank has an “extensive” range of tools for existing the so called quantitative and qualitative easing program (QQE). He emphasized that “the bank is still in the midst of striving to achieve the price stability target of 2% at the earliest possible time, and exit policies should be designed depending on the then-prevailing economic and inflation situation.” And he noted that while BoJ is still confident to reach the 2% inflation target in two years, QQE may not be ended then as BoJ aims to sustain that inflation level. Japan current account surplus widened to JPY 0.38T in May. Australian NAB business confidence rose to 8 in June.

Daily Pivots: (S1) 1.7101; (P) 1.7133; (R1) 1.7160; More

GBP/USD dips mildly today as the consolidation from 1.7179 temporary top continues. Intraday bias remains neutral first. As long as 1.7062 support holds, further rise is expected. Above 1.7179 will target next key long term fibonacci level at 1.7332. We’d expect loss of momentum as it approaches this level and reverse from there. Meanwhile, considering bearish divergence condition in 4 hours MACD, break of 1.7062 resistance turned support will be an early sign of reversal and will turn bias to the downside for 1.6952 support first.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. Based on unconvincing medium term momentum, we’d expect strong resistance from 50% retracement from 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal. Sustained break of 1.6692 will indicate medium term reversal and would turn outlook bearish for 1.4813 support.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Current Account (JPY) May
0.38T
0.17T
0.13T

1:30
AUD
NAB Business Confidence Jun
8

7

6:00
EUR
German Trade Balance (EUR) May
18.8B
16.2B
17.4B
17.2B
7:15
CHF
CPI M/M Jun
-0.10%
0.10%
0.30%

7:15
CHF
CPI Y/Y Jun
0.00%
0.20%
0.20%

7:15
CHF
Retail Sales (Real) Y/Y May
-0.60%
1.50%
0.40%
0.80%
8:30
GBP
Industrial Production M/M May
-0.70%
0.30%
0.40%

8:30
GBP
Industrial Production Y/Y May
2.30%
3.20%
3.00%
2.90%
8:30
GBP
Manufacturing Production M/M May
-1.30%
0.40%
0.40%

8:30
GBP
Manufacturing Production Y/Y May
3.70%
5.60%
4.40%

14:00
GBP
NIESR GDP Estimate Jun

0.90%

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