British Manufacturing Production, a key indicator, provides analysts and traders with a snapshot of the health of the UK manufacturing sector. A reading which is higher than the market forecast is bullish for the pound.
Indicator Background
The British Manufacturing Production indicator measures the changes in output produced by manufacturers and in the turning of inventory. Manufacturing is a critical sector of the economy, and strong readings are an indication of economic growth.
The indicator has struggled, posting two straight declines of 0.4%. The markets are expecting an improvement in the December report, with an estimate of 0.0%.
Sentiments and levels
Last week’s string of weak job numbers out of the US are raising concerns about the strength of the US economy, and may result in the Fed may delaying the next rate hike. Recent British PMIs were mixed, as economic growth has been modest, while low inflation numbers continue to be a concern. So, the overall sentiment is neutral on GBP/USD towards this release.
Technical levels, from top to bottom: 1.4752, 1.4635, 1.4562, 1.4346, 1.4227 and 1.4135.
5 Scenarios
Within expectations: -0.3% to +0.6%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 0.7% to 1.0%: A strong reading can send the pair above one resistance line.
Well above expectations: Above 1.1%: The likelihood of a sharp expansion in the manufacturing sector is low. Such an outcome could prop up the pound, and a second resistance line might be broken as a result.
Below expectations: -0.7% to -0.3%: In such a scenario, GBP/USD could lose one level of support.
Well below expectations: Below -0.7%: A sharp contraction would likely push the pair downwards, possibly breaking a second support level.
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