GBP FALLS AS INDUSTRIAL & MANU. PRODUCTION MISS

2016-12-07_11-56-25

GBPUSD, Daily               

The pound has come under pressure in London trading today. EURGBP buying has been a driver, with the cross rallying some 0.5% to a peak of 0.8510, since ebbing to around 0.8490. Gains failed to sustain above the 20-day moving average, which is at 0.8503. Cable, meanwhile, has clocked a three-session low below 1.2600, following the UK production data (see below) making today the first day the pair has fallen below its previous-session’s low since November 28. Recent give-away remarks and leaks have suggested that the government is intending a “soft” Brexit have, along with the BoE’s shift last month to a neutral from a dovish stance and a loosening of fiscal policy, been underpinning recent sterling outperformance. There are still a lot of unknowns regarding how Brexit will unfold and how it will impact medium-to long-term economic performance. The pressure on sterling remained

UK production data unexpectedly contracted in October data. Industrial output fell 1.3% m/m, the biggest fall in four years, accelerating from September’s 0.4% contraction. The median forecast had been for a 0.2% m/m gain. In y/y terms, industrial production fell 1.1% after a 0.4% gain in the previous month, the biggest decline since August 2013 and wrong-footing the market expectation for a 0.4% gain. The ONS stats office reported that ongoing maintenance in the oil and gas extraction industry affected industrial output. The narrower manufacturing production gauge, however, which excludes the oil industry, fell 0.9% m/m and by 0.4% y/y following respective prior-month gains of 0.6% and 0.1%, thwarting market expectations for 0.2% m/m and 0.8% y/y advances. Sterling traded 0.2% lower versus the dollar in the wake of the data release.

The psychological 1.2600 is key as the pair remains positive on the Daily time frame with short term resistance at 1.2720 and support at 1.2580 and 1.2500.

Janne Muta

Chief Market Analyst

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