Pound sinks on poor manufacturing data

The recent Q4 2014/Q1 2015 bounce in this data point is looking very dead cat-ish at the moment

The strong pound may be shouldering a lot of the blame in the market's eye but the signs have been there for a long time now

I mentioned many a time that the domestic strength will only get you so far and it looks like that economic prop has taken us as far as we can go. That's not to say the economy is in real trouble but means that we could well be entering a period of uninspiring growth. I think domestically we're strong enough to keep well away from recession but we won't go much further without a pick up in exports

The pound is taking a dive on the data and the biggest news is the strength of EURGBP. For whatever has gone on between the euro and the dollar, the one constant factor has been the UK outperforming Europe and the same goes for the currency. In effect we're a victim of our own success and Europe's weakness

Regular readers will know I've long been a long term seller of EURGBP with my last heavy short level up at the 0.80's. The current numbers coming out of the UK are not all that good and I'm going to be watching the levels closely for signs that this particular party is over. I don't feel we're there yet but the price will dictate the direction

The break into 0.7300 puts us close to some very strong technical levels

EURGBP daily

The first is the 0.7370/85 area which has been a strong point of support and resistance and is still likely to be. First we have the 100 dma at 0.7367, the natural S&R at 0.7375/80 and the 200 mma at 0.7385

If the current euro rally is going to have legs then getting above and holding this level is going to be key. At the moment the reasons for this level breaking are mounting. Europe is supposedly doing better, the UK is turning down and Greece is still a big factor if a deal is done. If any of those reasons keep rolling then even QE won't be a burden for the euro. One of the things I've always maintained with these shorts is that if Europe turns around the results in the currency will be strong and swift, even if it's just a relief factor I don't think we're quite there yet fundamentally, and I think the market is still getting a little ahead of itself

The next tech level above the 200 mma is at 0.7400 and there's a few minor levels up to 0.7450. 0.7510/15 is above there and the next big level to watch is at 0.7590. I'm inclined to see how this current run progresses, and if we go there, the 0.7500 level will be the first point I look at to weigh up adding to shorts. 0.7600 will be next but I'll be possibly looking to chuck the towel in and take what I've got if that breaks

It's sometimes easy to get shaken out of a trade over a few days of against trend moves and headlines as the fear creeps in. I'm not in that mood yet as I'm not going to be shaken out by one or two reports. As it stands Europe is still pumping QE and ages away from raising interest rates, while I'm still looking at this year for the UK. That's going to keep some bias still for the pound over the euro. The election is also a big factor, if only a temporary one.

For the last couple of years it's been a one way trade but that won't last forever. We always need to be watching for the signs of a change and when to then change tack. It's all part and parcel of this great trading game