The Sterling gained considerable strength versus the US dollar during the European morning session on the back of better than expected data, but is the GBPUSD strength likely to hold, and if so, what are the levels to watch?
First, lets take a look at the catalyst behind the action. The morning’s headline releases were the industrial production figure for March and the manufacturing production figure for the same period. Both releases beat expectations, with the industrial production reported at 0.9% versus expectations of 0.3% and manufacturing production reported at 1.0% versus a consensus forecast of 0.3%.
Having consolidated into last weekend and throughout Monday’s trading, the positive surprise boosted the cable from weekly lows at 1.6563 to fresh monthly highs at 1.6740, with only a small frictionary phase around the 1.6716 region.
If the bullish momentum holds, look for further strength in the pair as the day matures. A strong upside target of March highs at 1.6784 presents itself as an upside goal. Stochastics read overbought, so if the bulls do stay in control look for a small correction, perhaps as far as resistance at 1.6716. A failed retest of this level would validate further gains heading into the US afternoon session.
Keep in mind however, that a number of key US releases have the potential to reverse sentiment. The JOLTS job openings is set for a 15:00 GMT release, and a downside miss could set the current highs as a potential reversal level. In addition, two members of the FOMC are set to speak just after the US lunchtime. A hawkish tone could strengthen the argument for a reversal.
In this instance, look for an initial downside target of the aforementioned resistance region at 1.6716. Beyond that, previous resistance come support offers up a nice secondary target at 1.6647. Of course, an upside surprise would compound the current bias and strengthen the argument for fresh monthly highs.
To contact the reporter of this story; Samuel Rae at Samuel@forexminute.com