Strong UK manufacturing report for December pushes GBP / USD higher. Production, new orders, employment – everything increased during the month.
A solid UK manufacturing report for December is responsible for reversing GBP / USD losses from the start of the week. It shows that the sector is developing at a sustained pace, 57.9 against 57.6 previously and 57.6 expected, thanks to higher production, new orders and increased employment.
As a result, the pound jumped across the board, winning against its peers. Not only is the GBP / USD higher on this day, but so is the GBP / JPY, while the EUR / GBP has fallen over fifty pips.
However, not everything looks good in the report. For example, new export orders fell for the fourth month in a row, while selling price inflation hit new records.
Inverted head and shoulders pattern indicates more upside down
The technical image shows two bullish patterns. First off, there’s a possible reverse head and shoulder pattern in the works. The market is currently “working” on the right shoulder, and a daily close above 1.3550 should be interpreted as a break out of the configuration neck line. Traders would likely push further higher on such a move, as the road is open for the measured move, shown in orange on the chart below.
Second, the lowest points of the inverted figure of the head and shoulders coincide with a triple bottom. The market tried the 1.32 zone three times in a row and was rejected each time.
Warmongering BOE backs strong British pound
As the business year begins, the manufacturing report supports the Bank of England (BOE) hawkishness. In December, the central bank raised the interest rate and investors expect more hikes soon. Certainly, the fact that the recovery in manufacturing continues should prove the BOE right and thus support greater strength ahead for the pound sterling.
On the other hand, the big unknown comes from the United States. The economy is strong and the Fed is preparing to rise this year, but traders need more clues. The first will arrive in three days, as the report on non-farm wages is released on Friday. The US dollar could show some strength thanks to better than expected employment data.