UK Data and EUR/GBP’s Bearish Continuation Signal

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UK Data and EUR/GBP's Bearish Continuation Signal

UK Manufacturing production rose 0.7% in November from October, which is the fastest pace in 7 months. This is not that impressive since the October print was -0.7%. Nonetheless, the November reading beat forecasts calling for a reading around 0.4%.
UK manufacturing nov. 2014
(click to enlarge; source: forexfactory.com)

Overall industrial production fell 0.1%, but this was mainly due to unexpected maintenance at some North Sea oil fields.

The trade deficit narrowed from -9.8B pounds to -8.8B. Imports fell 3.2% while oil imports plunged 18.7% to the lowest level since Oct. 2010.

BoE: It seems like after some slowing in Q3 of 2014, Q4 was picking up. Still the BoE is expected to hold out the entire year before considering raising rates. The main issue is inflation and wage growth. The BoE interest rate policy statement from Thursday reveals that Carney is expect inflation to fall below 1%.

EUR/GBP Daily Chart 1/9
eurgbp daily chart 1/9
(click to enlarge)

New Low: EUR/GBP rang in the new year by breaking below the 2014-low after breaking below a multi-month triangle consolidation. Immediately after marking a new low, EUR/GBP rallied, making the breakout unclear so far.

Pullback: This week, the market held the pullback before clearing above the 0.7967 resistance pivot, as well as the 50-day SMA. So far, despite the unclear breakout, this week’s price action points to a bearish outlook.

Let’s take a look at the 1H chart.

EUR/GBP 1H Chart 1/9
eurgbp 1h chart 1/9
(click to enlarge)

Bearish Reaction: When we look at the 1H chart, we can see that traders sold the EUR/GBP after the release of the data points from UK. We also got some German and French industrial production numbers, which disappointed.

Rounded Top: Now, this bearish reaction is running into a previous support pivot at 0.7783, so not surprisingly, there is some buying here. Note that this week’s “rounded top”. This suggests the EUR/GBP is ready for bearish continuation, if it can clear the base at 0.7793. Therefore, the pair is at the cusp of completing a bearish continuation signal and open up the 0.7750 low with risk of breaking lower towards 0.77.

Key resistance: To complete a strong bearish signal, EUR/GBP should NOT rally back above the 0.7830 support/resistance pivot, and should break below 0.7790.

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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.