UK Industrial Production Miss Not A Disaster For GBP Bulls
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Forex News and Events:
 This morning’s UK industrial production data was a rather large miss to the downside, with June figures revealing a -0.5% MoM contraction in activity compared to the consensus estimate of +0.1%. However, in spite of being a disappointment compared to consensus, the year on year data (+1.3% vs. +1.9% expected) is still consistent with the very strong Q2 GDP release we got last week (that first estimate assumed a 1.0% QoQ expansion in industrial production). Much better than expected industrial production data has been responsible for much of the subsequent upward revisions to UK GDP readings in the past few quarters so we may not see such increases on this round of readings; but today’s print alone is still not a disaster for the broader UK recovery story. Today’s non-farm payrolls will be a keenly awaited release for currency markets as the correlations between the both USD and risk, along with Treasury yields and USDJPY continue to prove key drivers. Consensus estimates are looking for a drop of -65k jobs in July (last month’s print -125k), and the unemployment rate is expected to tick upwards to 9.6% (from 9.5% in June). We do feel that this soft patch is simply a temporary lull in the trajectory of the US economy, and that going forward the risks are skewed to upside surprises in US data. We still favour USDJPY longs as a core medium and long term trade, and eye a return to 90.00 levels by the end of the year.
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Today's Key Issues (time in GMT):
12:30 USD Non-farm payrolls (Jul), exp: -65k, prev: -125k
12:30 USD Unemployment (Jul), exp: 9.6%, prev: 9.5%.
11:00 CAD Unemployment rate (Jul), exp: 7.9%, prev: 7.9%
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The Risk Today:
GbpUsd Undoubtedly, GBPUSD’s stellar rally has needed to pause and re-group after finally meeting decent resistance around 1.5970, but for now the bulls are refusing to concede to the bearish head-and-shoulders pattern we highlighted on the hourly chart yesterday. To recap; in the process of liquidating weak longs yesterday, GBPUSD slipped through the important 1.5865 support (61.8% fibonacci retracement of the sell off from 1.6878 to 1.4229) which also represented the neckline of a very short-term head and shoulders with a target at 1.5760. The lower edge of a 2-week uptrend has however managed to stall the sell-off and elicit a bit of a recovery; that trendline support is now eyed at 1.5875. If that breaks then our target is the very next stop on the downside. Once we hit that target, we would hope to start rebuilding longs in harmony with our core medium-term bullish bias; that bias is still firm as long as we hold above the 200-day moving average, currently 1.5528.
UsdJpy As mentioned yesterday, the rebound off the lower edge of the 5-week downtrend channel has been pretty emphatic, and after smashing through the upper edge of the steep 1-week downtrend (to highs of 86.46) we feel a bullish correction will ensue from here. Today’s low of 85.71 seems like the most sensible guide for long entry, with a stop through the 4 May low 85.32. We do acknowledge that strong selling pressure remains at 86.46 (yesterday’s high), 86.89 (Monday’s high) and 88.00 (back side of former short-term uptrend and a strong psychological level). A resumption of the recent selling pressure would immediately target 85.32, and should the pair break down through there then buckle your seatbelts for another test of November 2009’s low of 84.83.
UsdChf Range trading still seems like the plat du jour for USDCHF, with 1.0560 marking out the key resistance on the topside and 1.0350 providing the floor. As discussed earlier in the week a possible double bottom pattern may be in play on the hourly chart (with a target at 1.0600), but our conviction is low after the ugly plunge to lows of 1.0413 yesterday. We do however see a good case for accepting that a very strong term uptrend is in play on the hourly chart, with support from the lower edge of that channel due at 1.0430. Rallies are likely to struggle back towards 1.0560, and beyond there the 1.0640-55 zone (27 Jul high and 200-day moving average). We still think that the eventual break out from the range will come to the downside; once 1.0350 is overcome, very little lies in the way of a return to the 19 Jan low 1.0229 and the 11 Jan low 1.0131.
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Resistance and Support:
| EURUSD |
GBPUSD |
USDJPY |
USDCHF |
| 1.3420 |
1.6070 |
88.00 |
1.0700 |
| 1.3365 |
1.6000 |
86.90 |
1.0640 |
| 1.3265 |
1.5970 |
86.45 |
1.0560 |
| 1.3180 |
1.5850 |
86.05 |
1.0475 |
| 1.3100 |
1.5820 |
85.70 |
1.0350 |
| 1.2980 |
1.5660 |
85.30 |
1.0230 |
| 1.2950 |
1.5550 |
84.80 |
1.0130 |
| S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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