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UK Industrial production preview: What to expect in GBP/USD?

FXStreet (Mumbai) - The GBP/USD pair is trading on a strong footing ahead of the UK industrial production report, but the strength is more due to the broad based USD weakness rather than strong UK fundamentals.

UK industrial production to recoup part of the July fall

The industrial production in the UK is well-off the peak readings of 2013 and 2014, but the drop of 0.4% month-on-month (m/m) in July was slightly exaggerated. Thus, a bounce of 0.3% m/m is expected in August. On similar lines, the manufacturing activity is seen rebounding 0.4%m/m.

Still, there exists a possibility of the downside surprise. The UK PMI reports in July and August had highlighted a drop in the export orders and a slowdown in the activity. Furthermore, the UK exports have also suffered a sequential drop offlate. Hence, the rebound in the industrial production may be slower than expected. However, it may not be a shock to the markets.

Heading into the Bank of England (BOE) rate decision tomorrow, a weaker –than-expected UK PMI future would only add to BOE’s worries and leave little scope for the bank to remain hawkish.

GBP/USD Technical Levels

The spot is currently hovering around 1.5248 (50% of Apr-June rally) and the expanding triangle resistance on the daily chart. A break above the same, followed by a rally to 1.53-1.5319 (200-DMA) appears likely in case the industrial production rebounds faster than expected. On the downside, repeated failure to rise above 1.5248 could push the pair back to 1.52 levels. A break below 1.52 followed by a drop to sub-1.5170 levels appears likely in case the UK industrial production contracts.

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