Market News & Analysis


Top Story

Sterling Lower on Economic Data

It seemed as though no one even noticed economic data during the 4th quarter of last year, as Brexit was the sole focus.  With Brexit now a done deal (although a trade agreement still needs to be worked out), traders are turning their attention once again to economic data.  Many market participants, as well as individual companies, were “on hold” during Q4 as they awaited the election outcome.  As a result, the data was expected to be poor.  However, for today’s most important data releases, the outcome was even worse than expected.

Industrial Production (MoM) for November declined by -1.2% vs an expectation of -0.2%.  Manufacturing Production (MoM) for November declined by -1.7% vs an expectation of -0.3%.  GDP (MoM) for November was -0.3% vs an expectation of 0.1%.  Although Construction Output and Balance of Trade data for November were better than expected, traders focused more on the data misses rather than the beats.  Combine this data with BOE’s Carney’s dovish comments last week and BOE’s Vlieghe dovish comments today, and the result is a lower Great British Pound.

GBP/USD has been moving lower since putting in a higher near 1.3500 after the election results.  Since those results, each bounce has been sold into and the result is a symmetrical triangle.  With today’s data,  the pair is trading lower near the pivotal 1.3000 level.  If price breaks below the upward sloping trendline of the triangle, there is support from an upward sloping trendline extending back to September, as well as,  previous lows in November near 1.2800.  Below that, support is at the 50% retracement level from the September 3rd low to the December 13th highs near 1.2740.  There is also a confluence of support at previous highs from September 20th and the 61.8% Fibonacci retracement level of the previously mentioned timeframe near 1.2550. First resistance is at the downward sloping trendline of the triangle near 1.3120.  If price breaks above the trendline, it has room to run to near the election highs just above 1.3500.

Source Tradingview, FOREX.com

GBP/USD wasn’t the only pair affected by the poor data from the UK.  EUR/GBP has been in a falling wedge since mid-August of last year, after failing to break below the wedge after the election, the pair traded back into the middle of the wedge.  However, the poor results pushed the pair even higher to the top of the wedge and horizontal resistance near .8590.  If the pair breaks above these levels,  EUR/GBP could easily run to the 38.2% Fibonacci retracement of the move from the August highs to the December lows near .8670, then perhaps pulling back to retest the trendline before moving higher.  The target for the breakout of a falling wedge is 100% of the wedge, which would be near .9325!! The 50% retracement level  of the previously mentioned timeframe is .8000 (along with horizontal resistance near that level.  There is a band of support below between .8440 and .8540, and below that a retest of the December lows near.8275.

Source Tradingview, FOREX.com

Inflation data and Retail Sales are due out Wednesday and Friday, respectively.  If the data is worse than expected, Sterling may continue to ahead lower.  In addition,  BOE’s Saunders is speaking Wednesday.  Any dovish talk may also push the Pound lower.


From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.