Article by ForexTime
The GBP/USD found support after clocking a fresh one-month low of 1.6757 following the overnight release of the BRC July retail sales report, where the headline sales figure unexpectedly dipped 0.3 % y/y. The data had earlier helped also lift EUR/GBP, though the cross has subsequently taken a tumble following the weaker than expected Zew survey. The data reaffirmed Cable’s bear trend that has developed over the last month, amid signs that the strength of the pound was starting to affect the export competitiveness of the manufacturing sector.
Last week’s June U.K. production disappointed and matched the picture painted by the July PMI survey of the manufacturing sector. The stellar services and construction July PMIs, sectors that account for over 80% of the economy, offset the evident abatement in industrial sector activity, but a benign price picture has been imparting a bearish bias on sterling. The BRC shop prices gauge fell to the lowest on record in July, of -1.2%, while the July PMI reports found price pressures remaining muted. This has strengthened the view that the BoE will likely refrain from hiking rates as soon as by year-end, and instead wait until early 2015.
The German ZEW investor confidence slumped to 8.6 in August, below consensus and down from 27.1 in the previous month. Rising geopolitical tensions and especially concerns that the sanctions against Russia will derail the German recovery are weighing on confidence although for now the expectations reading remains in positive territory, indicating that optimists continue to outnumber pessimists. The sector breakdown showed that the drop was broad based, with only utilities companies somewhat less pessimistic about the outlook. Confidence in chemicals, automobile, steel, electronics and mechanical engineering meanwhile took a sharp hit.
Momentum continues to point to a lower GBP/USD exchange rate. The MACD (moving average convergence divergence) index is printing in negative territory with a downward sloping trajectory. The RSI (relative strength index) is printing a reading of 29, which is below the oversold trigger level of 30 and could foreshadow a correction.
Article by ForexTime
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