DailyFX

GBP/USD to Face Larger Recovery as U.K. Production Rebounds

David Song

DailyFX.com -

- U.K. Industrial & Manufacturing Production to Increase for Second-Time in 2016.

- Will the BoE Stay on Course to Normalize Monetary Policy?

For more updates, sign up for David's e-mail distribution list.

Trading the News: U.K. Industrial & Manufacturing Production

A rebound in U.K. Industrial & Manufacturing Production may boost the economic outlook for the U.K. economy and spur a near-term rebound in GBP/USD as it raises the scope for a stronger-than-expected recovery.

What’s Expected:

DailyFX Calendar
DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

Beyond the looming U.K. Referendum in June, positive data prints coming out of the region may put increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later as central bank officials see a risk of overshooting the 2% inflation target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Net Consumer Credit (MAR)

1.3B

1.9B

Gross Domestic Product (YoY) (1Q A)

2.0%

2.1%

NIESR GDP Estimate (MAR)

--

0.3%

The pickup in private-sector credit accompanied by signs of a stronger-than-expected recovery may encourage U.K. firms to boost production, and a positive development may spark a bullish reaction in the sterling as it highlights an improved outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Markit Purchasing Manager Index- Manufacturing (APR)

51.2

49.2

Retail Sales ex Auto Fuel (MoM) (MAR)

-0.3%

-1.6%

Trade Balance (FEB)

-3.400B

-4.840B

However, waning demand from home and abroad may drag on business outputs, and an unexpected contraction in industrial & manufacturing production may drag on the British Pound as it gives the BoE greater scope to retain the record-low interest rate for an extended period of time.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Industrial & Manufacturing Production Rebounds in March

  • Need red, green-minute candle following the report to consider a long British Pound trade.

  • If market reaction favors bullish sterling trade, short GBP/USD with two separate position.

  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.

  • Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bearish GBP Trade: U.K. Business Outputs Fall Short of Market Forecast

  • Need red, five-minute candle to favor a short GBP/USD trade.

  • Implement same setup as the bullish British Pound trade, just in reverse.

and

Recommended Stories