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Pound Sterling Strong Despite Declining

By InstaForex GroupForexJan 17, 2022 09:23AM ET
www.investing.com/analysis/pound-sterling-strong-despite-declining-200614971
Pound Sterling Strong Despite Declining
By InstaForex Group   |  Jan 17, 2022 09:23AM ET
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Last week, the pound sterling ignored the EU macro stats. Instead, its trajectory was dependent on the US economic reports. However, on Friday, traders took notice of the UK industrial production data. The figure turned out to be worse than expected.

Industrial production was projected to slow down to 0.7% from 1.4%. This forecast reading was already bad enough. The previous figures were downwardly revised to 0.2%. At the same time, the actual indicator totaled 0.1%.

Industrial production is stagnating as it has not recovered yet from the coronavirus crisis of 2020. The decline in the pound sterling after this report was quite strange.

Naturally, some analysts could say that the British currency was extremely overbought, and weak data just triggered a correction.

The thing is, the pound sterling has decreased after the report's release. In other words, it simply ignored grim data.

UK industrial production.
UK industrial production.

Analysts are sure that the movements of the pound sterling on Friday were chaotic due to high speculative activity. The US dollar managed to add gains even amid weak macroeconomic stats. Before that, the pound sterling ignored only the EU economic reports, reacting mainly to the US ones.

Nevertheless, the British currency paid zero attention even to the US new economic data on Friday. In the US, retail sales dropped to 16.9% from 18.2%. Economists had expected an indicator of 17.0%.

On a monthly basis, the situation is even worse as retail sales decreased by 1.9%. Notably, it was the December reading. At this time, retail sales usually grow as consumer activity is high amid the Christmas holiday.

However, according to the report, consumer activity slowed down significantly. This isn't very reassuring, given that it is the main driver of the US economy. In addition, industrial production, which was expected to accelerate to 5.4% from 5.3%, tumbled to 3.7% from 5.0%.

As a result, the previous data was downwardly revised, and the actual reading was noticeably worse than forecasts. Despite weak economic data, the US dollar kept growing. Such behavior of the market is quite odd and even alarming.

The US currency may plunge or rise higher because of speculative activity. What is more, it is tough to predict an asset's movements in such periods and perhaps even impossible. Uncertainty is likely to persist until the middle of next week when the FOMC meeting occurs.

Today, the market will remain thin as trading floors in the US are closed. The nation honors civil rights leader Martin Luther King Jr. Besides, last week, trading volumes grew either before the opening of the US session or after that. So, market activity is likely to be low without US traders.

US retail sales.
US retail sales.

The pound/dollar pair slowed down its inertial movement near 1.3750. At first, it fluctuated at that level for some time. After that, it retreated by about 100 pips.

Given the strong upward movement of the last four weeks, the pound sterling is still overbought. It is confirmed by the RSI D1 indicator, which is moving along the 70 line.

On the daily chart, there is a change in the medium-term trend. So, the pound sterling has recouped more than half of its losses after the recent decline.

Outlook

Despite the overbought status, speculators continue to push the pound sterling higher, preventing it from entering the correction phase.

This may lead to temporary stagnation near the Fibonacci retracement level of 50. The pivot points are 1.3755 for long positions and 1.3645 for short ones.

Due to price stagnation, the complex indicator analysis gives mixed signals on short-term and intraday charts. Technical indicators show an inertial movement, signaling long positions in the medium term.

GBP/USD price chart.
GBP/USD price chart.

InstaForex Group

Pound Sterling Strong Despite Declining
 

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Pound Sterling Strong Despite Declining

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