Data wise this week’s focus is on the release of inflation, labor market, and retail sales.  Additional to the data risk MPS prepare to vote on Brexit amendments (Tue and Wed) is the other risk event to rattle the GBP. On the euro side, ECB monetary policy meeting is gaining traction too.

The pound was pressed post weak April economic data, IP down by 0.8% and manufacturing output down by 1.4%. The monthly decrease in manufacturing output is the largest fall since October 2012 when it fell by 1.8%.

Data review:

At 52.5 in May the UK Construction PMI remained unchanged since April

UK Services PMI rose to 54.0 in May, up from 52.8 in April

In April 2018, total production was estimated to have decreased by 0.8% compared with March 2018, led by a fall of 1.4% in manufacturing

Data preview:

We expect unemployment rate likely to remain at 4.2% and CPI and retail sales are expected to disappoint the market.

The Consumer Prices Index 12-month rate was 2.4% in April 2018, down from 2.5% in March 2018. Turning to retail sales, the monthly growth rate of 1.6% recovery from a fall of 1.1% in March.

TECHNICAL VIEW

  • Ascending triangle pattern
  • Weekly resistance seems to be at 0.8870

 Forthcoming UK data release likely to have an impact on the GBP. Looking over the coming weeks, we believe the official data prints will pave the way to the Q3 rate hike. Since early May the euro has been locked in a tight range between 0.8840 its 200MA and 0.8700 May 29 low. The other week’s higher low pattern reduced the risks of another re-test of the support zone 0.8700-0.8680. A move above 0.8850 or the ascending triangle’s resistance trendline could open further short-term rally to 0.8900.  The supports are at 0.8740 and 0.8700 levels.

The cross must close above 0.8870 on a weekly basis to confirm further bullish wave.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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