Sterling Talking Points

- UK data provide no further clues for GBP traders

- Brexit headwinds will keep GBP in check – all eyes on March 22/23.

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UK Data Shows Solid Manufacturing Growth But GBP Unmoved

Growth in UK manufacturing remains solid but unspectacular, according to the latest government figures as the UK currency now turns its attention back to the ongoing Brexit talks, consigning Thursday’s hawkish BoE meeting to the past.

December industrial production m/m fell to -1.3% from a revised 0.3% in November and against expectations of -0.9% while manufacturing production m/m rose to 0.3% from a revised 0.2% in the prior month and matched expectations of 0.3%.

The next important data point for the UK watchers in Tuesday, February 13 when a raft of releases at 9:30 am include consumer price inflation, producer prices and the retail price index.

We will be covering the latest look at UK inflation live from 9:15am on Tuesday.

Brexit Talks Becoming Increasingly Acrimonious

The latest round of Brexit negotiations are proving as complicated and acrimonious as the first stage of talks with little seemingly decided over the last week. Both sides remain adamant that their ‘red lines’ will not be crossed with the UK this week upping the stakes and accusing the EU of bad faith over a memo which disclosed that the EU plans to sanction the UK if it breaks the rules of the post-transition period. The EU also re-stated this week that Northern Ireland will remain in the customs union and the single market after Brexit, an option the UK is not likely to cede to.

The next important date for GBP traders is the EU leaders meeting on March 22-23, a date when both sides hoped to have reached an agreement on the terms of the transition period agreed in principle in December last year.

GBPUSD Price Chart Daily Timeframe (September 3, 2017 – February 9, 2018)

GBP Will Struggle to Move Higher as Brexit Squall Nears

Chart by IG

GBPUSD Client Positioning Hints at Lower Prices

IG Client Sentiment data show 48.3% of traders are net-long GBP/USD with the ratio of traders short to long at 1.07 to 1. In fact, traders have remained net-short since Dec 28 when GBPUSD traded near 1.33692; price has moved 4.5% higher since then. The percentage of traders net-long is now at its highest since Dec 20 when GBPUSD traded near 1.33692.

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.

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--- Written by Nick Cawley, Analyst