Decline in Halifax Housing Index Turns Pound Bearish

Decline in Halifax Housing Index Turns Pound Bearish
August 24, 2016

Mexico receives a major chunk of its revenue through the export of crude oil. However, the reversal in the price of crude oil to $48 per barrel did not assist the strengthening of the Mexican Peso against the most traded currencies, including the Pound. The main reason for that is a preliminary report indicating a 0.3% q-o-q contraction of the Mexican economy.

The uptrend in the GBPMXN pair, from a low of 23.157 to a high of 24.50, was also aided by the UK’s better than expected CPI (Consumer Price Index) and retail sales data. However, the bullish sentiment towards the Pound may subside in the weeks ahead due to a series of mixed economic data from the UK. Furthermore, the upbeat employment and inflation data from Mexico, as discussed below, may also assist a reversal soon.

The final GDP economic data indicated that the Mexican economy shrank 0.2% instead of the 0.3% contraction estimated earlier. On a y-o-y basis, the economy grew 2.5% in the second-quarter of 2016, compared to the prior estimates of 2.4% growth. The unemployment rate of Mexico declined to 3.9% in June, from 4% in May. In the same period last year, the unemployment rate stood at 4.4%.

In the case of the UK, the trade deficit widened to £5.1 billion in June, from £4.2 billion in May. Similarly, the Confederation of British Industry order book balance fell to -4 in July, from -2 a month earlier. The consumer confidence reading also plunged to -12 in July, from -1 in June, with analysts expecting a reading of -8.

Finally, the Halifax Housing Index reading also declined to 694.80 points in July, from 701.70 points in June. As it can be understood, the economic climate is not conducive in the UK and this would keep the Pound under tremendous pressure against all the currencies including that of the Mexican Peso. So, we have a short-term bearish view on the GBPMXN pair.

The GBPMXN pair is expected to face stiff resistance at 24.90. The stochastic indicator reflects an overbought scenario. Thus, we can expect the cross to decline to the next major support at 24.05.

GBPMXN - Technical Analysis - 24th August 2016

A currency trader can make use of this opportunity and go short in the GBPMXN pair at 24.90 levels. A stop loss order can be used above 25.18 to cut down losses. The short position can be closed near 24.10.

Profit can be generated from the probable slide in the GBPMXN pair through the purchase of a one touch put option from a suitable binary broker. The strike price of the put option contract should be higher than 24.05. The expiry period for the contract should be preferably in the third week of September.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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