Comfortable Aussie Pressuring Wobbly Sterling – Selling GBPAUD Suggested

The GBP and the AUD both trimmed their streak of gains versus the greenback on Wednesday. The Sterling has witnessed relatively larger declines after a report showed that U.K manufacturing output slumped at the fastest pace in a year.

Data from the Office for National Statistics (ONS) indicated a sharp month-on-month contraction in the UK manufacturing sector in July, with activity falling by 0.9%, as factories restricted production in the immediate aftermath of the Brexit vote. Prior to today’s data, economists had forecast a 0.3 per cent decline in manufacturing production for July, on a month on month basis

Among 13 manufacturing sub-sectors, only six recorded an output increase. Transport equipment manufacturers led the gainers with a 5.7% rate of growth(monthly basis), while the largest fall was recorded in the manufacture of pharmaceuticals, which decreased by 5.3%.

The report also confirmed overall industrial production output rose 0.1% on a monthly basis in July, which defied expectations for a contraction, as the sharp decline in the manufacturing was offset by growth in the other three sectors, especially mining and quarrying with an increase of 4.7%.

Today’s report is among the first official statistics offering a broad-based view of the economy for a full month after the Brexit vote. While recent data have delivered the message that the economy has so far held up better than expected, this negative report comes at a time when hopes were building, that a softening GBP (post Brexit) would support manufacturers by making British goods more attractive to overseas buyers.

Investors are now turning their attention to Prime Minister Theresa May, who is preparing to begin negotiations with European Union leaders over the terms of the U.K.’s exit from the trading bloc. Theresa May is determined to begin EU exit negotiations early in 2017 in spite of warnings from a senior Tory MP that she should wait until French and German elections are concluded.

On the other hand, the Australian dollar was not hit much versus sterling following the Australian Bureau of Statistics’ report that the rate of GDP growth in the second quarter decelerated to 0.5%. The Aussie has been trading quite comfortable since the Reserve Bank of Australia decided to stand pat on interest rates on Tuesday.


Fig: GBPAUD D1 Technical Chart

GBPAUD had to retreat from the resistance at 1.76700 as the pair could not stand the double trouble caused by the descending trend line connecting the lower highs from the period between May 26 to date, and the MA50, which is placed above the price action. As can be seen from the stochastic chart, the %K line is falling rapidly ahead of the %D line, after having crossed it recently from above, with a large distance between two lines. The currency pair is expected to decline further.

Trade suggestion

Sell Stop at 1.73800, Take profit at 1.71000, Stop loss at 1.76700

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