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Sterling has been knocked off its perch

Market Analysis

GBPNZD, H1

UK December trade data showed earlier a worse than expected deficit, with the goods deficit working out at GBP 13.6 bln, up from GBP 12.5 bln in the month prior and wrong footing the median forecast for a decline to a deficit of GBP 11.6 bln. The overall trade balance showed a deficit of GBP 4.9 bln, much worse than the GBP 2.4 bln deficit figure expected. At the same time,  UK December production released as well and contracted more than expected, by 1.3% m/m after a 0.3% m/m gain in November. The y/y figure came in flat, below the median for 0.3% y/y growth and after a 2.6% gain in the month prior. Declines in mining and quarrying drove the headline industrial figure lower, while the narrower manufacturing output figure rose by 0.3% m/m and by 1.4% y/y, both up on expectations. BoE Governor Carney yesterday described the manufacturing sector as been in a sweet spot, benefiting from robust demand and burgeoning growth in export demand, in turn aided by past depreciation of sterling.

In short-term, Sterling is seen falling on the data announcement, with Cable driven by nearly 50 pips down. GBPNZD and other pound crosses have been seeing a similar intra-day price action. GBPNZD has ebbed by around 115 pips to the 1.9250 level, following a break of the 20 and 50-period EMA in the hourly chart. The pair rose  this week as high as the 1.9452, on the anticipation and  release of the RBNZ Monetary Policy Statement, along with the hawkish BoE comments. However, since yesterday’s peak, its seen bouncing between 1.9370 and 1.9210 area. The latest could be consider as an immediate intra-day support area, since it has been hit several times since Wednesday, while it is also the confluence of 50% Fibonacci retracement level and 200-period EMA. 

Short-term momentum indicators are  pointing to a continuation of the upwards price action seen since February 7. The MACD oscillator supports the positive momentum , as it is moving in the positive area, in both Daily and intra-day charts. Meanwhile, short-term  RSI and Stochastic are sloping downwards below neutral, however they remain positive in the Daily time-frame. This suggests that the weakness seen today, could signal a correction lower before the continuation of its upwards movement.  

Therefore, in short-term, only a break below 1.9188- 1.9200, could triggered a short position, with a possible retesting of 61.8% Fibonacci retracement level at 1.9150. In longer timeframe, a break below the 1.9150 level which coincides with the 20-Day MA and  61.8% Fibonacci retracement level, could indicate that bears are in control and therefore is liekly to retest February’s swing low at 1.8965 and January’s lows at 1.8670. 

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Andria Pichidi

Market Analyst

HotForex

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