Cable Weakens as Data Misses

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Market Drivers May 11, 2016

UK MP misses its mark
Australian Consumer Confidence rises
Nikkei 2.15% Dax 1.07%
Oil $44/bbl
Gold $1268/oz.

Europe and Asia:
AUD Westpac Consumer Confidence 8.5% vs. -4.0%
GBP MP 0.1% vs. 0.3%
GBP IP -0.2% vs. -0.4%

North America:
No Data

It’s been an exceedingly quiet night of trade in the currency market with very little newsflow to move the major pairs with the exception of cable which broke below the 1.4400 figure in the wake of weaker than expected UK manufacturing data.

UK Manufacturing Production printed at 0.1% versus 0.3% while Industrial Production came in at -0.2% versus -0.4% forecast. The biggest decrease occurred in mining and quarrying sector with two out of four sectors in Industrial Production shows decrease as well. Although the ONS noted that the results from March will not have any impact on UK Q1 GDP figures, it does show a softening of demand which most likely deteriorated further in April.

The latest data points from UK are showing that the combination of concern over Brexit and the general slowdown in global economic activity are clearly starting to take their toll on growth. Most analysts have pushed their expectations of any tightening by BOE well into 2017 versus forecasts of normalization this year which were common just a few months ago.

Tomorrow the market will get the BOE minutes and although no one expects any change in policy, any dovish commentary from the central bank regarding the recent weakening in data could push cable lower to test support at the 1.4300 level.

Elsewhere the dollar rally against the yen ran into a wall of profit taking above the 109.00 figure with Tokyo traders sending the pair back to 108.55 as the day proceeded. Although USD/JPY appears to have bottomed, garnering support from tougher intervention rhetoric from MOF over the past few days, the 110.00 figure is likely to prove to be a much more stiffer zone of resistance and it unlikely to get taken out unless US data surprises to the upside.

The eco calendar is once again barren today with only crude distillate release on the docket. The market therefore could remain in a semi-comatose state for yet another day as traders look for new themes to develop. For now the tight range environment is likely to persist with most pairs treading water near their equilibrium values in generally listless trade.

Boris Schlossberg
Managing Director

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