Cable higher on better than expected Production, will BoE extend the gains?

Over the past 24 hours investors were focused mainly on the UK Pound as we mentioned in our report yesterday and it was a pretty much expected focus point as the Industrial and Manufacturing Production reports were bound to attract attention. The British currency has been sold off aggressively in recent weeks and has been trading in a bearish manner for two weeks without the smallest correction.

It is easy to understand then that any piece of good news from the UK domestic economy could spur investors to take their profits of the table and propel the Cable higher. Indeed yesterday the release of the Production reports surprised higher giving the Pound all the reason it needed to reverse its recent downtrend and look for higher ground. Given the amount of time the Pound remained in a bearish state and the inherit character of the currency we could see a hefty correction in the coming days.

An important role on whether the Pound will continue rallying against its peers will be played by the BoE meeting on monetary policy taking place today. Since the meeting will be followed by the release of the minutes we will have the opportunity to hear what the policymakers have mind and what is their outlook for the domestic economy. A bullish tone should send the Cable even higher while concerns about recent downtick in several business sector could limit any further gains.

The Cable traded all the way to the 1.5300 level yesterday on the back of the better than expected Production reports and should today’s BoE meeting add fuel to the fire then we could see the UK currency rallying all the way to the 1.5400 area. However as we mentioned above a bearish and concerned tone from the policymakers could limit any gains and send the currency back lower to test the 1.5200 support floor.

The Euro came under pressure over the past session and attempted to retreat below the 1.1230 area which appears as the short term pivot point but managed to end the day trading around the 1.1250 area. However it seems that the news for the Single currency are not good with weakness coming from the German economy and with the VW scandal playing on the news this bearish momentum could pick up pace. A further correction below the 1.1230 pivot level could expose the 1.1200 area in the Euro and an extension of any bearish momentum could send the currency testing the 1.1150 support floor.