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Sterling grinds lower on UK Manufacturing PMI miss

Market Analysis

EURGBP and GBPUSD, H1

Eurozone manufacturing PMI confirmed at 59.6. The final Eurozone number of 59.6 is down from 60.6 in December, but Markit reported a strong start to 2018 adding that while rates of growth in output and new orders eased slightly from near record highs in December they remained among the best seen since the survey began in 1997 and signalled solid growth across the consumer, intermediate and investment goods categories. At the same time, UK’s January manufacturing PMI disappointed, unexpectedly declining in the headline reading to 55.3, which is the lowest sine last June and down from 56.2 in December, which was itself revised slightly lower, fro 56.3. The decline in January marks the second consecutive month of abatement in the pace of expansion in the sector.

The pound’s approximate 10% trade-weighted discount versus levels that were prevailing before the vote to leave the EU, along with strong global demand, have been underpinning export performance in the manufacturing sector. GBPUSD along with EURGBP had ebbed by nearly 25 pips against Euro and and Greenback, with the latest lifting above its 3-day lows, at 0.8741. The pound has seen a similar moderate retreat against yen as well.

Cable closed out January with just over a net 5.0% gain, which is the biggest month advance the pound has seen since July 2010. The out-performance was driven by an unwinding in the Brexit discount. Despite the sharp rally seen in the wake of data, GBPUSD, is currently traded southwards, after forming a Doji  hourly candle. However, the Intra-day picture, remains bullish, since the pair is traded above all 4 Moving averages (5,9,50 and 200-period EMAs), with the short-term 5-period EMA movign above the 9-period and 20-period EMAs.  Nevertheless, short-term momentum indicators continue signalling further upside momentum, with RSI and Stochastic oscillator sloping close to overbought territory, while MACD remains positive since Tuesday.

Therefore, any down movement of GBPUSD  today, could be consider as a possible “buy on dips” opportunity, with USD dollar remaining on bear phase. Cable is expected to test the round resistance at 1.4300, but after it moves slightly lower  close to the  ommediate support area at 1.4215 ( High fractals and 9-period EMa) and the 20-period MA at 1.4200.

A similar retreat can be seen in EURGBP cross, with Pound remaining stronger against Euro. The  EURGBP is expected to continue getting weaker, retesting the immediate Support area at 0.8695-0.8715.

 

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Andria Pichidi

Market Analyst

HotForex

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