Sunday, January 19, 2014

This week’s economic calendar | Is the British Pound due for a trend change?

The economic calendar for the coming week, showing items that can be expected to have a high impact on currency exchange rates, is shown above. We will be dealing with these items as the week progresses.

Earlier this morning saw a number of reports out of China that dealt with Gross Domestic Product (GDP). These indicate that its economy is not growing at the rate it has been up to now, although the outcome on this occasion is not as bad as had been expected by a survey of economists carried out by the Wall Street Journal. Economic growth in China is very important for the Australian and New Zealand currencies, in particular. However, Chinese authorities have been attempting to adjust to a lower growth model, primarily because the massive expansion of recent years is unsustainable, and also to allow for developments in social, environmental, monetary, fiscal and other issues that will eventually allow that nation to prosper on the back of internal consumption rather than having an almost total reliance on exported manufactured goods and state investment in infrastructure.

Today, or rather tonight in GMT terms, sees the Consumer Price Index for New Zealand. Given our position in the AUDNZD this will have to be of interest.

Today, Monday, is Martin Luther King Day in the US. While this cannot be described as a high impact event per se, it will lead to relatively thin trading in the GMT afternoon, as the US markets will be closed.

Tomorrow has two items for Germany. The ZEW survey of economic sentiment is highly regarded and can be expected to cause some volatility in the Euro. Prior to that is the ruling of the German Constitutional Court on the legality of the ECB Outright Monetary Transactions (OMT), which allows the Central Bank to purchase the bonds of Euro zone countries, and which is set up as an important tool to deal with the kind of instability in the Euro periphery that led to the Euro crisis. If this case goes against the ECB there are Euro sceptic forces in Germany that could be motivated to push their case further, even to the extent of attempting to force Germany to leave the Euro and, ultimately, the European Union!

Is the British Pound due for a trend change?

Since the middle of 2013, when the Bank of England Monetary Policy Committee (MPC) announced that it was not going to increase its Quantitative Easing any further, the British Pound has been on a steady rise. However, it has now reached to top of a fairly well defined channel. This also coincides with the 200 period Simple Moving Average (SMA) on the monthly chart. Therefore many technical traders will be expecting the GBPUSD pair to reverse from here.

Our Mandelbrot methodology is also giving a signal which indicates that a reversal might very well be on the cards:

On the daily chart, above, it can be seen that if the rate falls below the dotted horizontal line once more then a lower high and a lower low will be in evidence, indicating a downtrend. Whether or not that continues is open to question but there is a compelling reason for monitoring this pair in the coming days and weeks. We intend to do just that.

Do the fundamentals support the idea that a trend reversal is on the cards for GBPUSD? The answer is they very well might. Recent reports on UK Industrial production, Purchasing Managers Index (PMI), Manufacturing and even economic growth have been less than stellar. All of this just might be enough to lessen the tendency of the MPC to curtail UK Quantitative Easing. In the meantime QE in the USA is definitely on the way out and the medium-to-long-term prospects for the US dollar are to the upside. Therefore this pair could indeed be ripe for a fall.

The pronouncements of the Bank of England Monetary Policy Committee and UK unemployment figures on Wednesday could be decisive in this regard.

No comments:

Post a Comment