Brexit
The British Pound remained under bearish pressure this Friday after the release of disappointing GDP and manufacturing data. GDP m/m only grew by 2.1%, which was a gross underperformance compared to the previous figure of 6.4% (a downward revision), and also lower than the market consensus of 4.6%.
On the manufacturing side of things, construction output m/m grew 3.0%, which was less than the consensus of 5.1% and grossly below the 17.2% registered previously. Industrial and manufacturing production rose 0.3% and 0.7% respectively, well below the 5.2% and 6.9% respective figures for the month before.
The data show that the UK economy is heading back into the doldrums following an explosion of new coronavirus cases that has necessitated new shutdowns in many areas.
Economists at Handelsbanken are bearish on the Pound and have lowered their forecasts for the UK economy. They forecast GDP recovery in 2021 to drop from 5.1% to 3.9%, and on to 1.7% in 2022. Their dire predictions see 2024 as the earliest that growth will return to the UK’s economy.
The GBPZAR is 0.68% lower this Friday following the disappointing data and is also down 0.26% this week after giving up gains notched earlier.
Technically speaking, the Pound to Rand exchange rate picture on the GBPZAR daily chart reveals that the pair is struggling under bearish pressure. The most recent highs faced rejection at the 21.58047 price level. This rejection follows a previous one at the 22.05446 resistance level. So there is a situation where the price is finding it increasingly challenging to surmount progressively lower resistance lines.
In the light of today’s poor GDP and manufacturing/industrial data of the UK, the fundamentals suggest that the Pound is likely to struggle in the days ahead. This could put the support at the 50% Fibonacci retracement level (20.97316) under pressure. If this support gives way, then the Pound to Rand exchange rate could drop to the next Fibonacci support at 20.33500 (3 March high/26 March low), with 19.68257 (5 March/19 March lows) and 19.42644 (78.6% Fibonacci support) lining up as potential downside targets.
Conversely, a bounce on the 50% Fibonacci retracement level allows the GBPZAR to attempt a short-term recovery towards 21.58047, with 22.05446 and 22.42432 queueing up as potential targets to the north. However, a bounce may be as an opportunity to sell on rallies, and only a break above 23.35124 negates the descending triangle and restores upside bias on the GBPZAR.
