Last month, higher chances of a smooth Brexit and better growth prospects supported the pound to gain against its developed rivals such as the greenback. The GBPUSD pair’s uptrend was also aided by the uncertainty created by Trump’s trade war against China. Since April 1, the GBPUSD pair has rallied from a low of 1.4030 to a high of 1.4370. However, the recent economic data suggest that the GBPUSD pair may undergo a bearish reversal in the days to come.
The UK consumer price index increased by 2.5% in March 2018, compared with 2.7% in February 2018. Economists had expected the consumer price index to increase by 2.7%. Furthermore, the Office for National Statistics stated that core consumer price inflation, which excludes volatile food, energy, alcohol, and tobacco items, rose 2.3% in March 2018, compared with the 2.4% increase in February, and lower than the 2.5% gain anticipated by analysts. It is the lowest recorded inflation rate since March 2017. The price of clothing and footwear rose less than it did last year. This had a negative impact on consumer price inflation.
The UK statistical organization also reported that the price of goods and raw materials purchased by manufacturers declined 0.1% m-o-m in March, versus analysts’ expectation of a 0.3% increase. In the previous month, the producer price index declined by 0.4%. The poor inflation data has turned the pound weak. On the contrary, the greenback was strengthened by strong industrial production and building permit data.
The US Commerce Department stated that housing starts increased 1.9% to a seasonally adjusted annual rate of 1.319 million units in March. During the previous month, the number of groundbreaking events was 1.295 million. Economists surveyed by Thomson Reuters had expected housing starts to increase to 1.262 million units in February.
Likewise, permits for future home building increased 2.5% to 1.354 million units in March, from 1.32 million units in the previous month. Analysts had expected building permits to increase to 1.33 million.
The US Federal Reserve data showed factory production expanded by 0.5% m-o-m in March, down from 1.1% growth registered in the previous month, but greater than 0.3% growth anticipated by analysts. On an annualized basis, factory output expanded by 3.1% in the first quarter, following a 5.5% growth rate in the last quarter of 2017. The above facts support a decline of the GBPUSD pair.
Technically, the GBPUSD pair has started declining after facing resistance at 1.4270. The momentum indicator is also making a negative divergence with the currency pair. On the downside, the next major support exists only at 1.3720. Therefore, we can expect the currency pair to decline further. So, it would be prudent on the part of a trader to hold a short position in the currency pair.
In the Forex market, based on the analysis, we wish to open a short position near 1.4240 in the GBPUSD pair. To limit speculation related risk, we would place a stop-loss order above 1.4340. Simultaneously, to book profit, we would place a buy order near 1.3920.
Additionally, in the binary market, we are planning to acquire a put option contract to gain from the probable decline of the GBPUSD pair. The contract may be bought only when the pair trades near 1.4240. We would also select April 27 or a day closer to that for the expiry of the contract.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
