The GBP/USD continued the gains and stretched higher despite the prevailing uncertainty and volatility in the market on Thursday. Sterling was supported by positive data and the upbeat outlook for monetary tightening compared to the US economy which bolstered sterling gains versus the dollar.
On Thursday, sterling was supported by a report that showed a rise in consumer confidence in March from a record low which eased the fears over the recovery and supported bulls to carry sterling higher on rate bets.
From the US the condition was to the opposite with core PPI steady at 1.9% on the year ahead of Friday’s CPI figures, supporting the argument by the Feds that inflation is contained and the monetary policy stance will likely remain loose.
On Friday the outlook is highly volatile and we expect sterling’s gains to be tempered with the sentiment with the lack of UK data. The Chinese GDP figures at 02:00 GMT will define the overall sentiment in the market as fears over growth and monetary tightening might trigger losses for equities and commodities and accordingly affect the risk appetite and support the dollar versus sterling if that was dominant.
Also we have heavy data from the US which will influence the market as well, with the focus on inflation and growth figures. The US at 12:30 GMT will release Consumer Price inflation and expectations are for inflation to have rose to 2.6% on the year from 2.6% and core inflation to remain well contained at 1.2%. Empire Manufacturing is awaited at the same time and expected generally stable in expansion at 17.00 from 17.50.
At 13:00 GMT; TIC data is expected to see how investors are accessing US assets and good data will help ease the jitters in the market yet support a strong pound as the dollar will not gain grounds with rising optimism.
Industrial production is expected at 13:15 GMT and might have rise 0.5% in March with capacity utilization rising to 77.4%; the data will be followed by Michigan Confidence for April expected also higher to 69.0 from 67.5.
The volatility as you can see will remain high and mixed trading might be seen with the end of the week and squaring of positions. Still the main judge will be China and if markets passed the optimism test and did not trigger a huge selloff the market will move on the US data.
We see potential for continued sterling gains if inflation remained week alongside strong growth figures from the US which will fuel gains for the pound on a brighter rate outlook compared to the feds. While weak growth figures from China, inflation and weak manufacturing and industrial figures from the US all combined with profit taking with the end of the week will power the dollar over sterling.
Originally posted here
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