UK Data Helps Propel The British Pound Higher Today

The UK Industrial Production and Manufacturing Production was stronger than expectations with IP falling by -0.6% vs -0.9% expectation and Manufacturing Production falling by -0.1% vs expectation of -0.8%.  Moreover, prior months were revised higher with IP showing a fall of -0.8% vs previous estimate of -1.0% and Manufacturing Production falling by -0.3% vs -0.9%.  The gains are being attributed to the lower pound which has fallen by 15% on a trade weighted basis in the past 12 months.  A lower pound makes exports more competitive abroad.

In other UK news the Trade Balance was also released.  This showed the trade deficit narrowed more that expectations.  The Visible Trade Balance came in at -6,589 B pounds vs expectations of -7,200 B pounds.  This was the lowest since April 2007.  Later today the US and Canada Trade balances will be released (at 8;30 AM).    Within the number imports fell by 1.4% indicating still weak demand domestically but exports only fell by 0.5% indicating on a relative basis, the export market was fairing better.  The UK has been showing signs of improvement albeit from low levels.  The BOE announced last week that they would increase the Bond Purchase Plan by 50 billion pounds ($75 billion) for a total of 125 billion pounds in order to stimulate demand and slow deflationary forces.

The data today helped the GBP/USD move sharply higher today (Tuesday). The pair overnight toyed with moving below the 100 hour moving average in the earlier part of the trading day, falling below the key moving average at the 1.5095 level to a low of 1.5073, but frustrated the shorts and moved back above in the next hourly bar.  The bounce gave longs further confidence to buy and when the data came out, the price surged higher.

The action took the pair above the high from yesterday at the 1.5244.  This level will be watched in the NY session as support.

Looking at the shorter term chart the price traded in a fairly narrow range for the 1st half of the trading day. The high was contained by 1.5142. The bottom used 1.5100 area with the exception of the one dip below the 100 hour moving average which could not muster the downside momentum after the inital break.

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