Upbeat construction PMI data turns Pound bullish

The unwinding of short positions continues to keep the Pound firm against the major currencies, including the Swiss Franc. The Swiss National Bank’s policy of keeping the Franc weak, in order to fight deflation and boost exports, has also aided the strengthening of the Pound against the safe haven currency. Due to the reasons mentioned below, we believe that the Pound will remain bullish in the short-term.

The Bank of England’s monetary policy meeting is scheduled today (Thursday). It is almost certain that the BoE would announce a rate cut and the market has almost factored in the move. Thus, only a surprise announcement can trigger further fall in the Pound. The market participants would closely watch for any hint on further easing measures.

Reuters

The UK construction output reading in July, announced on Tuesday, stood at 45.9. The reading was higher than the analysts’ forecasts of 44.2. A recent report indicated that the priority of UK’s Prime Minister Theresa May is to maintain a free trade with the mainland Europe. Furthermore, an agreement in this regard would ensure that the inflow of investments into the UK will remain unhampered. The report has created a bullish view on the Pound.

On the other hand, in June 2016, the retail sales in the Switzerland declined -3.9% on a y-o- y basis. The reading was greater than -2% decline anticipated by the analysts. Similarly, the seasonally adjusted manufacturing PMI reading declined to 50.1 in July, from 51.6 in June. The analysts were looking for an increase in the manufacturing PMI reading to 51.9. Thus, fundamentally, the GBP/CHF pair can be anticipated to remain strong in the weeks ahead.

After testing the support level of 1.2770, the GBP/CHF has risen to trade at 1.2830. The MACD is rising above the zero line, thereby indicating the possibility of an uptrend. The next resistance for the currency pair exists at 1.3020.

Thus, buying the Pound and selling the Franc (long position in the GBP/CHF) is recommended. Considering the BoE meeting scheduled today, it is better to place a stop loss order at 1.2730. The suggested trade carries a risk to reward ratio of 1:2.

A one touch call option can be bought by a binary trader to ride on the probable uptrend in the currency pair. The target level for the suggested contract should be 1.3020 or lower. A two week time span (contract expiry period) would be more than enough for the currency pair to violate the desired exchange rate.