The UK inflation in February remained unchanged at 0.3%. The services and manufacturing PMIs rose in March, but manufacturing and industrial production are forecast to come in lower for February. Will the pound continue weakening?
The Bank of England decided to keep the interest rate unchanged at 0.5% and to leave the program of annual asset purchases at 375 billion Pounds at its March 17 meeting. The policy makers forecast the first quarter GDP will grow at the same 0.5% rate recorded in the fourth quarter of 2015, but noted increased risks for the economy from uncertainty about the country’s membership in the European Union. A week later the inflation data showed consumer price growth in February remained at previous month’s 0.3% rate against an expected 0.4% increase. There were positive signs though indicating possible rise in inflation in medium term: average weekly earnings in three months to January 2016 grew 2.1% year-over-year compared with 1.9% rise in the previous period. Further positive developments for pound were higher Manufacturing and Services PMIs for March, which shows expansion in important sectors of British economy. At the same time the US dollar has been weakening after Janet Yellen said last week the Federal Reserve should be cautious about raising interest rates. This is providing support to major currencies including the pound. Today industrial and manufacturing production for February will be released together with the balance of trade. While the trade deficit is expected to remain unchanged, weaker readings are expected for both gauges of industrial production. In case both readings come in weaker as expected, this may indicate slowing of economic growth which will negatively affect the pound. Next week March inflation data will be reported by the Office of National Statistics on April 12, and the Bank of England will meet on April 14 to decide on monetary policy.
The GBP/USD has been correcting downward since the start of April after rising for the most part of the past month. The Parabolic indicator gives a sell signal. The RSI oscillator is below the 50 level and is edging lower. The Donchian channel is tilted downward. The MACD indicator is below the signal line and the zero level which is a bearish signal. We believe the bearish momentum will continue after the price closes below the lower Donchian channel at 1.4004. A pending order to sell can be placed below that level. The stop loss can be placed above the last fractal high at 1.4458. After placing the pending order the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Sell Sell stop below 1.4004 Stop loss above 1.4458