UK Manufacturing Output: Impact of the News Release on the GBP/USD Currency Pair
Countries with developed industries have always been renowned for their stable economies, growing
budgets, and rising social standards.
Thanks to the constant export of industrial products, the state accumulates foreign currency reserves, which are so necessary for maintaining the stability of the entire economy as a whole and the banking sector.
The amount of taxes collected from industry is simply enormous and accounts for the lion's share of the country's GDP.
Thus, industrial development is a direct path to economic growth and prosperity of any state.
To give you an idea, the manufacturing industry accounts for 80 percent of the UK's total industrial output and includes such industries as ferrous metallurgy, non-ferrous metallurgy, chemical and oil refining industries, mechanical engineering, metalworking, light industry and many other industries.
Therefore, having learned the data on the volume of production in the manufacturing industry, it is possible to draw general conclusions about the improvement or deterioration of both the industrial sector and the UK economy as a whole.
When interpreting this news for trading, an increase in production volumes leads to a strengthening and rising pound, while a decline in production volumes leads to a weakening and rapid decline. However, in practice, when trading this news, price action isn't as smooth and logical as we'd like, and the market's reaction can be unpredictable.
In order to develop a trading strategy based on this news, I propose considering the market reaction after the publication of data for the last four months on the GBP/USD currency pair , calculating how many points the chart moves on average, and also approximately how long the effect of the news lasts on market participants.
On July 7, 2015, data published showed a significant contraction in production. While the forecast was for growth from -0.4 percent to 0.1 percent, the reality was more severe, with a -0.6 percent decline. Therefore, it was entirely logical to expect a sharp decline in the GBP/USD pair due to such a sharp weakening of the GBP.
You can see how the bidders reacted in the image below:
The chart shows a completely predictable reaction from market participants, which led to the GBP/USD currency pair plummeting 128 pips. The news had a strong impact on the price, causing the chart to fall for 6 hours and 25 minutes. The decline ended after the market smoothly transitioned to sideways movement.
August 6, 2015, was a significant day for many analysts, as for the first time in a long time, their forecasts were fulfilled exactly one percent. Thus, the projected growth in manufacturing output from -0.6 percent to 0.2 percent actually occurred.
Therefore, it's quite expected that the GBP/USD currency pair will begin to rise rapidly. The price's reaction to the increase in production volume can be seen in the image below:
Prior to this news release, positive US economic data was released, triggering the formation of a new trend. The release of industrial data triggered another 30-point pullback, which lasted for an hour and five minutes, after which the news's impact was suppressed by a sharp decline in the price in the direction of the new trend.
On September 9, 2015, according to the economic calendar , there was a sharp decline in manufacturing output, from 0.2 percent to -0.8 percent. This indicates a significant deterioration in the industrial complex, which should immediately lead to a sharp decline in the GBP/USD currency pair. You can see the reaction to the negative GBP data in the image below:
The chart shows a rather aggressive market reaction to the negative news, which led to a sharp price break and the formation of a gap . The impact of the news release lasted at least 2 hours and 50 minutes, with the price successfully moving 45 pips in the direction of the news.
The news ended with a classic price rebound to close the gap.
On October 7, 2015, after such a significant decline in production volume in the manufacturing industry, there was an increase from -0.8 percent to 0.5 percent.
Such positive news should quickly resonate with market participants, with the GBP/USD currency pair rising. The price action in response to this positive news can be seen in the image below:
Despite the positive news, the market reaction was rather sluggish, so the price resembled a broad, sweeping flat . However, albeit slowly, the news had its effect, moving 56 points in eight hours. The impact of the news release ended with a pullback and a transition to a narrow sideways market.
Analyzing the market's reaction to this news release, we realize that participants react in a rather mixed and sometimes sluggish manner. But no matter which scenario we consider, the price almost always moves in the direction of the news.
Thus, if we set a stop order of 30 points and take a profit of the same size, we get the following results: 30 + 30 + 30 + 30 = 120 points of profit. Therefore, in conclusion, we can say that this news can be applied in your trading, focusing on the minimum targets set in the above analysis.
