Pound Up on Strong Growth in Industrial Production

Pound Up on Strong Growth in Industrial Production

The GBPUSD pair remains range bound between 1.3075 and 1.3280 for the past two months. The weakness in the US economy, mainly due to hurricanes Harvey and Irma, kept the Greenback weak. On the other hand, the Brexit related issues keeps the Pound under pressure. Thus, the GBPUSD moves in a tight trading range. However, we forecast a rally in the GBPUSD pair due to reasons given below.

In the UK, the industrial production grew 0.7% month-over-month in September, according to the Office for National Statistics (ONS), up from 0.3% in August and above analysts’ forecasts of 0.4%. Notably, it is the sixth monthly increase in a row. The Q3 manufacturing activity is now estimated to have increased by 1.1% q-o-q, up from 1%, as September’s production was upwardly revised from the statistical department’s preliminary estimate of 0.3%.

The market’s sentiment towards the Pound turned bullish when the ONS reported a trade deficit that narrowed to £11.25 billion in September, from £12.35 billion in the earlier month, and better than analysts’ expectation of £12.9 billion.

In the US, the Trump administration is facing opposition to the tax overhaul plan. According to a report in The Washington Post, the Senate Republicans are now looking at the prospects of amending the tax reform bill such that it would delay corporate tax cuts by more than a year.

While a Fed rate hike in December is almost certain, markets doubt whether the central bank would be able to raise rates frequently in 2018. Further, the Greenback, which is also considered as a safe haven currency, will lose its attractiveness as the global economic condition improves. The reason is investors would not hesitate to allocate funds to riskier assets during periods of global economic growth.

Further, the UBS econometric models indicate the Greenback is overvalued by as much as 10% to 15%, compared to other currencies. The data from the International Monetary Fund and the US Fed indicate investors have built a disproportionately greater position in the US dollar denominated assets in 2017. Thus, on the basis of the discussion above, we forecast a rally in the GBPUSD pair in the near-term future.

The historic price chart indicates that the GBPUSD has bounced off the support at 1.3080. The stochastic indicator is rising out of the bearish zone. That indicates an increase in the buying pressure. If the pair breaks out of the trading range, then the next major resistance is anticipated at 1.3460.

GBPUSD - Technical Analysis - 13th November 2017

The uptrend can be traded by going long in the GBPUSD pair near 1.3080, with a stop loss order below 1.2960. In a case, we open a trade in the Forex market, the long position will be sold near 1.3460.

Alternatively, we may invest in a call option, which has a validity period of one week. The option will be bought from a reputed binary broker when the pair trades near 1.3080.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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