Industrial production in the U.K. is expected to have declined 1.2% in January, which could mark the eight straight month of contraction. Economist are predicting that the annualized rate has sunk to 9.9% which would be the lowest level since a 1981.The month’s prior 1.7% drop was led by a 4.3% decline in basic metals and with activity slowing globally we should see this trend continue.
Fundamental Outlook
Industrial production in the U.K. is expected to have declined 1.2% in January, which could mark the eight straight month of contraction. Economist are predicting that the annualized rate has sunk to 9.9% which would be the lowest level since a 1981.The month’s prior 1.7% drop was led by a 4.3% decline in basic metals and with activity slowing globally we should see this trend continue. More evidence that the U.K. recession is deepening should continue to put pressure on the pound which would validate the short-term bearish technical outlook. Given the recent Sterling sell off and the shallow technical target, the release could set up for a long pound position after an initial bearish reaction.
Technical Outlook
The count on the daily, which shows 5 waves down from the 2007 high, indicates that risk of a sharp advance is high. The count that I am working with now treats the rally from 1.35 to 1.4990 as wave A of a flat (flats have subwaves 3-3-5). B waves of flats retrace a significant portion of wave A, sometimes retracing more than 100% of wave A (in the case of an expanded flat). I wrote last week that “with this risk, being long at this point against 1.3990 is risky. Still, the next large move is expected to be up through 1.4990; it is unclear whether or not this occurs prior to a test of 1.35.” With this morning’s developments, expect a test of 1.35 prior to a low
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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com
