GBP Drops Ahead of Today’s Data: Outlook Remains Bearish

Jan 11, 12:45 pm
Sterling_GBP

The British Pound is considered to be the weakest currency since the beginning of the year. The pound tumbled all the way back to 1.21 areas as fears of hard Brexit is rising by the days. The European and the British are just blaming each other over the outcome of that referendum. Moreover, they are also threatening each other, something we haven’t seen since decades ago.

In today’s report, we will look at the upcoming economic releases from the UK, which may have a notable impact on the markets. Yet, the effect might be short-lived, as everyone will be waiting for the President-Elect Trump speech later tonight.

Definitions you need to know

Manufacturing Production: Change in the total inflation-adjusted value of output produced by manufacturers. Manufacturing makes up around 80% of total Industrial Production and tends to dominate the market impact.

Goods Trade Balance: Difference in value between imported and exported goods during the reported month. A positive number indicates that more goods were exported than imported.

Construction Output: Change in the total amount builders spent on construction projects. Released monthly, about 40 days after the month ends.

Industrial Production: Change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities.

Why These Figures Matter?

The Manufacturing Production is considered as a leading indicator of economic health - production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings.

As for the Trade Balance, Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers

The industrial production also matters as mines and utilities make up around 20% of total production, so this data tends to be overshadowed by Manufacturing Production which makes up the other 80%.

Expectations are mixed

Indicator

Forecast

Prior

Manufacturing Production m/m

0.6%

-0.9%

Goods Trade Balance

-11.2B

-9.7B

Construction Output m/m

0.3%

-0.6%

Industrial Production m/m

0.8%

-1.3%

Today’s expectations are slightly mixed, Manufacturing Production, Construction Output, and the Industrial Production are all expected to show better reading compared to last month’s outcome. However, the Trade Balance deficit is expected to widen further, toward -11.2B, which would be the biggest deficit in two months.

On the other hand, Manufacturing Production is expected to rise by the most in seven months, while Construction Output may post the biggest increase in six months. Finally, the Industrial Production is expected to post an increase on 0.8%, which would be the biggest monthly increase since May of last year, and the first increases after three months of consecutive declines.

What Does It Mean For The Pound?

As noted in many of the previous reports, the British Pound outlook remains bearish and might even accelerate this year. Why? Again, because of the Bank of England easy policy. There are no signs of any change for the time being, especially that the Brexit impact is not there yet. Therefore, further declines are more likely over the next few month.

From a Technical point of view, GBPUSD failed to stabilize above 1.22 at the beginning of this year, declining all the way back to 1.21, which makes 1.22 level a solid resistance area, where sellers are likely to appear once again. Technical indicators on the short term are slightly overbought after two days of short term retracement, any disappointment from today’s data would be the catalyst for another leg lower.

gbpusd 11 jan 2017 orbex

Levels To Watch

Symbol

S3

S2

S1

Pivot

R1

R2

R3

GBPUSD

1.2036

1.20701.21231.21571.22101.2244

1.2297

EURGBP

0.8520

0.85890.86290.86980.87380.8807

0.8847

GBPJPY

138.91

139.52140.25140.86141.59142.20

142.93

GBPAUD

1.6291

1.63601.64411.65101.65911.6660

1.6741

GBPCHF

1.2149

1.22011.22911.23431.24331.2485

1.2575

GBPNZD

1.7086

1.71711.72971.73821.75081.7593

1.7719

Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.