Summary:
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Construction PMI comes in close to expectations
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Crucial technical level to watch on GBPUSD in the short-term
After a positive surprise we got yesterday from the manufacturing sector today’s release concerning construction turned out to be almost in line with expectations. The pound barely responded to this reading though. Looking at the short-term timeframe one may assume that GBP bulls could be struggling in the hours to come as the important technical resistance may obstruct livelier gains.
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Civil engineering helped cushion a negative impact coming from housing and commercial construction. Source: Markit
Inconclusive conclusions
Construction PMI fell to 52.8 from 53.4 in December missing subtly the market consensus at 52.9. The detailed data shows that only civil engineering saw an improvement last month while housing and commercial construction saw a decrease. On top of that, confidence among builders reached the highest level since April and was well above the neat six-year low seen in October, the Markit writes. Moreover, respondents cited hopes of a boost in energy infrastructure projects in 2019. Let us remind that the surprising improvement seen in manufacturing was due to fears over a potentially disruptive Brexit. In today’s note Markit says that “unusually wet weather may have acted as a brake on construction work.” Despite unfavourable weather conditions new orders increased but only at a subdued pace. In turn, the weak result seen in commercial activity may have been caused by political uncertainty which delayed spending decisions among clients. Employment could be seen as a bright spot as we were offered a solid rise in this component across the entire construction sector. Nevertheless, the pace of job creation eased in December from the three-year peak reached in November. As far as prices are concerned, input cost inflation was the second-lowest since July 2016 signalling no impending need for the Bank of England to rise interest rates in the nearest future. For GBP investors this seems to be the most important part of this survey suggesting that the GBP could be struggling in the weeks to come as rate hike expectations remain low and Brexit uncertainty ought to frighten away bulls at least for a while.
Technical view
After the crash seen in the pound we have seen a corrective movement and the crucial technical resistance could be found nearby 1.2620. Note that after a breakout of this area the price tested it and then plunged. This increases importance of this zone. Source: xStation5
