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GBP/USD to Face Larger Recovery as U.K. Production Rebounds

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- U.K. Industrial & Manufacturing Production to Increase for Second-Time in 2016.

- Will the BoE Stay on Course to Normalize Monetary Policy?

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Trading the News: U.K. Industrial & Manufacturing Production

A rebound in U.K. Industrial & Manufacturing Production may boost the economic outlook for the U.K. economy and spur a near-term rebound in GBP/USD as it raises the scope for a stronger-than-expected recovery.

What's Expected:

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Why Is This Event Important:

Beyond the looming U.K. Referendum in June, positive data prints coming out of the region may put increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later as central bank officials see a risk of overshooting the 2% inflation target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release Expected Actual
Net Consumer Credit (MAR) 1.3B 1.9B
Gross Domestic Product (YoY) (1Q A) 2.0% 2.1%
NIESR GDP Estimate (MAR) -- 0.3%

The pickup in private-sector credit accompanied by signs of a stronger-than-expected recovery may encourage U.K. firms to boost production, and a positive development may spark a bullish reaction in the sterling as it highlights an improved outlook for growth and inflation.

Risk: B earish Argument/Scenario

Release Expected Actual
Markit Purchasing Manager Index- Manufacturing (APR) 51.2 49.2
Retail Sales ex Auto Fuel (MoM) (MAR) -0.3% -1.6%
Trade Balance (FEB) -3.400B -4.840B

However, waning demand from home and abroad may drag on business outputs, and an unexpected contraction in industrial & manufacturing production may drag on the British Pound as it gives the BoE greater scope to retain the record-low interest rate for an extended period of time.

How To Trade This Event Risk ( Video )

Bullish GBP Trade: Industrial & Manufacturing Production Rebounds in March

  • Need red, green-minute candle following the report to consider a long British Pound trade.
  • If market reaction favors bullish sterling trade, short GBP/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bearish GBP Trade: U.K. Business Outputs Fall Short of Market Forecast

  • Need red, five-minute candle to favor a short GBP/USD trade.
  • Implement same setup as the bullish British Pound trade, just in reverse.

Potential Price Targets For The Release

GBPUSD Daily

Chart - Cre ated Using FXCM Marketscope 2.0

  • GBP/USD may continue to threaten the downward trend from back in November as the pair carves a near-term series of higher lows in 2016, while the Relative Strength Index (RSI) largely preserves the bullish formation from January.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.3960 (50% expansion)

Check out the short-term technical levels that matter for GBP/USD heading into the report !

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Impact that the U.K. Industrial & Manufacturing Report has had on GBP during the last release

Period Data Released Estimate Actual Pips Change(1 Hour post event ) Pips Change(End of Day post event)
FEB2016 04/08/2016 08:30 GMT 0.1% & -0.2% -0.3% & -1.1% -42 0

February 2016 U.K. Industrial & Manufacturing Production

GBP/USD Chart

Industrial and Manufacturing Production in the U.K. both weakened in February, with outputs contracting 0.3% and 1.1%, respectively following the expansion in the first month of 2016. As the U.K. Referendum clouds the economic outlook for the region, the threat of an EU-exit accompanied by fears of a slower recovery may encourage the Bank of England (BoE) to retain a wait-and-see approach throughout the first-half of 2016 in an effort to mitigate the downside risks surrounding the real economy. Nevertheless, the market reaction was short-lived, with GBP/USD largely retracing the decline to 1.4050 to end the day at 1.4120.

Get our top trading opportunities of 2016 HERE

Read More:

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AUD/CAD Into Key Support- Monthly Opening Range In Focus

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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