It seemed as though no one even noticed economic data during the 4th quarter of last year, as Brexit was the sole focus. With Brexit now a done deal (although a trade agreement still needs to be worked out), traders are turning their attention once again to economic data.
Many market participants, as well as individual companies, were “on hold” during Q4 as they awaited the election outcome. As a result, the data was expected to be poor. However, for Monday's most important data releases, the outcome was even worse than expected.
Industrial Production (MoM) for November declined by -1.2% vs an expectation of -0.2%. Manufacturing Production (MoM) for November declined by -1.7% vs an expectation of -0.3%. GDP (MoM) for November was -0.3% vs an expectation of 0.1%. Although Construction Output and Balance of Trade data for November were better than expected, traders focused more on the data misses rather than the beats. Combine this data with BOE’s Carney’s dovish comments last week and BOE’s Vlieghe dovish comments today, and the result is a lower Great British Pound.
GBP/USD has been moving lower since putting in a higher near 1.3500 after the election results. Since those results, each bounce has been sold into and the result is a symmetrical triangle. With Monday’s data, the pair is trading lower near the pivotal 1.3000 level. If price breaks below the upward sloping trendline of the triangle, there is support from an upward sloping trendline extending back to September, as well as, previous lows in November near 1.2800. Below that, support is at the 50% retracement level from the September 3rd low to the December 13th highs near 1.2740. There is also a confluence of support at previous highs from September 20th and the 61.8% Fibonacci retracement level of the previously mentioned timeframe near 1.2550. First resistance is at the downward sloping trendline of the triangle near 1.3120. If price breaks above the trendline, it has room to run to near the election highs just above 1.3500.
GBP/USD wasn’t the only pair affected by the poor data from the UK. EUR/GBP has been in a falling wedge since mid-August of last year, after failing to break below the wedge after the election, the pair traded back into the middle of the wedge. However, the poor results pushed the pair even higher to the top of the wedge and horizontal resistance near .8590. If the pair breaks above these levels, EUR/GBP could easily run to the 38.2% Fibonacci retracement of the move from the August highs to the December lows near .8670, then perhaps pulling back to retest the trendline before moving higher. The target for the breakout of a falling wedge is 100% of the wedge, which would be near .9325!! The 50% retracement level of the previously mentioned timeframe is .8000 (along with horizontal resistance near that level. There is a band of support below between .8440 and .8540, and below that a retest of the December lows near.8275.
Inflation data and Retail Sales are due out Wednesday and Friday, respectively. If the data is worse than expected, Sterling may continue to ahead lower. In addition, BOE’s Saunders is speaking Wednesday. Any dovish talk may also push the Pound lower.