GBP/USD Breaks Down, GBP/AUD Tests Important Support Level After UK Manufacturing and Construction Data Disappoints

Source: MarkitEconomics (UK Manufacturing PMI)
The UK's manufacturing and construction sectors contracted in February, according to the Markit/CIPS UK Manufacturing and Construction PMIs.

The UK's manufacturing PMI fell to 47.9 in February from 50.5 in January (< 50 = contraction). It was the "first sub-par reading since last November."

Here's more from the Markit/CIPS UK manufacturing release:

New orders fell for a second successive month – and at an accelerated pace. The latest fall was the sharpest since last July amid reports of tough market conditions both at home and abroad. Poor weather was also mentioned as a factor negatively impacting on order book volumes.

New export orders declined for the fourteenth successive month, albeit at a modest pace. Whereas Europe was generally perceived to be an area of demand weakness, emerging markets remained a source of growth. The net reduction in new order volumes weighed on manufacturing production during the latest survey period. Production fell slightly, the first reduction since last October. In January, output had risen at the fastest pace for 21 months. Manufacturers were again able to focus their resources into clearing work outstanding during February. Backlogs of work declined for the twenty fifth consecutive month. The rate of reduction was marked, despite easing to the slowest since July 2011. There were reports of spare capacity and this in part led to a further reduction in employment, the seventh in as many months. Moreover, the degree of job shedding was the fastest for 40 months."

Source: MarkitEconomics (UK Construction PMI)
The UK's construction PMI dropped to 46.8 in February from 48.7 in January. According to the release, "The index has posted below the neutral 50.0 value in each of the past four months and the latest reading signalled the fastest pace of contraction since October 2009."

More from the Markit/CIPS UK construction release:

"The marked fall in construction output reflected a return to declining levels of commercial building work and a sharp decrease in civil engineering activity. Commercial construction decreased at the steepest pace for just over three years, while the latest reduction in work on civil engineering projects was the fastest since October 2009. This offset an increase in housing activity in February, with the marginal expansion in residential building the first improvement since May 2012."

As noted in my previous post on the UK's downgrade by Moody's, austerity + deleveraging isn't exactly a pro-growth mix, so the Bank of England will continue to dilute its currency to stimulate the UK's economy. Hence the reason why GBP/USD broke through 1.523 support recently, and why GBP/AUD is testing the 2012 low of 1.4555. GBP/USD broke below 1.52 for the first time since July 2010.

If you look at the longer-term support levels (floors) on the chart, GBP/USD could end up finding support around 1.42-1.43 based on the May/June 2010 lows, or around 1.35-1.36 when looking at the lows during the 2008/2009 financial crisis. But a currency war between printing presses at the Federal Reserve and Bank of England can obviously overpower all technical analysis.

GBP/USD (British Pound/U.S. Dollar) via

GBP/AUD (British Pound/Australian Dollar) via

According to Bloomberg TV, Scotia Bank is bearish on GBP/USD and has a 1.40 target. Here's the video from February 27, 2013.

Lastly, when looking at the Bank of England vs. Reserve Bank of Australia currency war, here's what the RBA said recently about printing money to lower the Australian dollar (via The Australian).

"THE Reserve Bank will consider taking up arms in the global "currency war" if the Australian dollar rises much further, suggesting it could flood the foreign exchange markets with newly printed money.

Reserve Bank assistant governor Guy Debelle yesterday conceded the Australian dollar was "somewhat on the high side" as a result of quantitative easing - or the creation of money - by other countries, but said the bank could easily act to limit the dollar's rise."

Related post on 2/24: Moody's Downgrades the UK, GBP/USD Breaks Support, GBP/AUD Testing 2012 Low (#CurrencyWars)
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