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GBP Drifts Lower on Mixed UK Output Data, Next Week Key

GBP Drifts Lower on Mixed UK Output Data, Next Week Key

2017-08-10 09:11:00
Nick Cawley, Strategist
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Talking Points

- Industrial output beats, manufacturing output in-line while construction output disappoints.

- June UK Trade balance widens despite weak Sterling.

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The latest figures from the Office for National Statistics (ONS) showed the UK’s trade deficit with the rest of the world widening further, despite GBP remaining weak. The UK’s total trade deficit (goods and services) widened by GBP2.0 billion between May and June 2017 to GBP4.6 billion, due to increases in imports of both goods and services.

The latest batch of production data was mixed and had little effect on Sterling. Industrial production for June rose a better-than-expected 0.5% m/m against expectations of 0.1%, manufacturing production m/m came in-line with expectations at 0.0%, while the construction industry continues to suffer and with m/m output turning negative 0.1% against expectations of a rise of 1.4%.

GBP/USD edged higher then drifted lower post-releases but still remains under downward pressure. Next week sees the release of inflation, jobs, wages and retail sales data, all closely watched by the market as BoE governor Mark Carney tries to balance the current high inflation/low growth problem.

We will be taking an advanced look at next week’s UK data in Friday’s UK Week Ahead Webinar here.

Chart: GBPUSD 5 Minute Timeframe (August 10, 2017)

GBP Drifts Lower on Mixed UK Output Data, Next Week Key

Chart by IG

GBP Drifts Lower on Mixed UK Output Data, Next Week Key

And a look at retail trader data shows 45.1% of traders are net-long with the ratio of traders short to long at 1.22 to 1. In fact, traders have remained net-short since Jun 23 when GBPUSD traded near 1.27744; price has moved 1.6% higher since then. The percentage of traders net-long is now its highest since Jul 25 when GBPUSD traded near 1.30291. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week.

Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

For the latest IG Client Sentiment indicators, click here

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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