This is a commentary from Richard Wiltshire, Chief Dealer of Foreign Exchange at ETX Capital.
In what have been relatively dull and lacklustre market conditions, Sterling traders tried to drum up some enthusiasm for today’s data releases as they looked for a breakout from the 1.5450 to 1.5600 range that has covered trading since we broke up through stubborn resistance on 25th April (forays above 1.5350 up to 1.5400 area had provided intraday players with good resistance levels in the weeks prior to this).
Indeed they got a nice surprise as this morning’s data showed UK industrial production rose by 0.7% m/m in March, some way above forecasts and with the additional bonus that Manufacturing output (two-thirds of total IP) was even stronger, rising 1.1% m/m in March.
The growth in manufacturing output is the most encouraging feature of the March data as it is generally regarded to give a clearer indication to the state of the “real economy” and £ rallied accordingly as it found renewed buying interest above 1.5530 taking out some intraday stops and trading up to 1.5380/90 area before reported offers from a UK Clearing bank “put a lid on it.”
However as has been the case on several occasions now (last Friday, Monday of this week and yet again yesterday) 1.5600 area resistance proved too tough a nut to crack and the protection of what are said to be extremely large stops above 1.5610/20 prevailed.
Helping in this defence is likely to be the fact that, at this stage, the stronger March data has not led to any upward revisions to Q1 industrial production.
And so to the Bank of England asset purchase target announcement and UK rate decision at midday London time. Although these were generally more in line with the consensus opinion, with the asset purchase target unchanged at 375 billion Pounds and the interest rate unchanged at 0.50%, there had been speculation in some quarters that the BoE may slightly raise the asset target (In April, Governor King and two other MPC Committee members voted to increase the asset purchase target by 25 billion Pounds for the third month ) but it would appear that the recent positive GDP data (0.3% GDP rise in the UK economy in Q1) was enough reason for the majority of the MPC to leave it where it was and continue to play the “wait and see” game. This also gave £ a small boost and Eur/ £ sold off from 0.8470 to support at 0.8430/40 as cable rallied, but once again 1.5600 was a “bridge too far” and we retraced back in to the comfort zone of the range.
For Cable ( £/$) downside, bids remain at 1.5500/30 with stops reported below 1.5490 and 1.5470. It would appear that any dips to 1.5440/50 area would be congested but an overall bid tone remains as we consolidate in this higher range and a break of 1.5600/20 would open up the 200 DMA at 1.5760.
This afternoon’s UK GDP estimate at 3pm will be closely watched bearing in mind the recent positive data and should give some impetus to Sterling’s short term direction with my only concern being that the intraday market feels like it has got itself a bit long and so may need a correction/clearout to the downside before we can resume higher with 0.8400 key support in the EURGBP cross.
Further reading: Sterling stuck in the middle
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