UK Manufacturing Production Preview: What to expect of GBP/USD?

UK Manufacturing Production Preview: What to expect of GBP/USD?

8 April 2016, 09:29
Roberto Jacobs

UK Manufacturing Production Preview: What to expect of GBP/USD?

UK manufacturing production numbers due for release today are likely show the output contracted in February. Manufacturing production is seen falling 0.2% m/m and 0.7% y/y. Meanwhile, industrial production is seen rising 0.1% m/m and 0.0% y/y.

GBP/USD – volatility at multi-year high, influenced by GBP/JPY cross

Cable is trading sideways around 1.4064 levels. The spot has shed more than 400 pips since April 30. The decline could be attributed to sharp sell-off in GBP/JPY cross. This makes Cable vulnerable to technical correction in the cross ahead of the weekend. Meanwhile, three-month implied volatility gauge is at 6-year high.

Manufacturing PMI hit 34-month low in February

The February PMI index, released on March 1st, had printed at 34-month low. Hence, weaker-than-expected figure would not be a surprise. However, Cable was resilient to weak PMI released on March 1, which means the pair may drop on weak manufacturing production figure today. A drop to 1.40 could be seen on weak data. Further losses could be seen if UK trade deficit widens more than expected.

On the other hand, a better-than-expected/positive UK data could see the pair move back above 1.4140 levels.

GBP/USD Technical Levels

The immediate hurdle is noted at 1.4079 (Jan 21 low) would yield a rise to 1.4132 (5-DMA) – 1.4154 (38.2% of 1.4669-1.3835) – 1.4165 (23.6% of 1.5230-1.3835). Acceptance above the same could point to short-term bearish invalidation, opening doors for a rise to 1.42.

Conversely, a break below 1.4032 (23.6% of 1.4669-1.3835) would expose 1.40 handle. A break below the same would strengthen bear grip and thus may lead to a drop to 1.3946 (Feb 29 high) and 1.3924 (76.4% Fibo exp of July 2014 high-Apr 2015 low-June 2016 high).

(Market News Provided by FXstreet)

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