GBP/USD Falls Back after Soft Manufacturing Data

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GBP/USD Falls Back after Soft Manufacturing Data

UK industrial production grew 0.3% in June compared to May, when it fell 0.6%. Forecasts called for a reading around 0.6%. The slower growth can be attributed to the strong pound and problems in the euro area.

Manufacturing production in June also grew 0.3% in June, rebounding from a -1.3% reading in May. Economists called for a reading around 0.7%.

UK data 8/6

(Source: Office of National Statistics; click to enlarge)

Growth was driven by transport equipment, basic metals and food. 8 out of the 13 components registered declines, while 5 grew.

The softer-than-expected data pulled GBP/USD lower after the release. In the 1H chart you can see that cable was also drifting after finding resistance at 1.6888. The reaction to UK data came down to the common lows around 1.6820-1.6825.

GBP/USD 1H Chart 8/6
gbpusd 1h chart 8/6

(click to enlarge)

Looking at the 1H chart, you can see the pair trying to consolidate since Aug. 1, after a downtrend that began from 1.7190 high on the year.There is a central pivot area between 1.6845-1.6856. A break back above 1.6860 would suggest further consolidation in GBP/USD, otherwise, the bearish bias should remain toward the 1.6010 area.

Bank of England Risk:

The consolidation range sets up a picture of indecision ahead of the BoE decision that is due tomorrow (8/7). The Monetary Policy Committee (MPC) starts the 2-day meeting today.

If the reaction to the MPC’s monetary statement is a break out of the consolidation range ,we should look for some short-term swing. To the upside, there is upside risk toward 1.70 in the context of a short-term bullish correction against against the prevailing downtrend in the medium term. A break below 1.68 continues the medium-term bearish outlook, with downside risk toward the 1.67 May-June lows.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.