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Sterling Edges Lower on Weak Production Data but Holds Technical Support Levels

David Becker
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www.iforex.com

Sterling moved lower on Tuesday following worse than expected production data, making a low of 1.7085 before finding a footing near the 10-day moving average. BoE MPC members have said that the course to tightening will be data dependent, but it is unlikely that data will change the picture too much as it will likely pick up again in June. The June manufacturing PMI clocked a seven-month high and signaled robust expansion.

U.K. May production data disappointed, with industrial output unexpectedly declining 0.7% month over month and rising 2.3% year over year, below the median forecasts for +0.2% month over month and +3.1% year over year. The narrower manufacturing production measure disappointed similarly, coming in at -1.3% month over month and +3.7% year over year. The unexpected month over month decline follows the strongest rise in production in four years in the three months to April, and contrasts the more upbeat picture that the private PMI survey data has painted, with the June manufacturing PMI having risen to the strongest in seven months. The slowing in May was broad based, and the volatile oil and gas component in the broad industrial measure rose 0.9% on the month.

The GBPUSD moved lower but held support near the 10-day moving average at 1.7115, with target support seen near last week’s lows at 1.6980. Momentum is still positive but the trajectory of the MACD has turned negative on the currency pair. Additionally, the RSI moved lower with price action reflecting accelerating negative momentum after coming from an overbought condition the RSI is printing near 65 which is on the upper end of the neutral range.

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