GBP/USD Risks Near-Term Breakout On Strong 2Q U.K. GDP Report
Dailyfx | Jul 28, 2015 04:53AM ET
Trading the News: U.K. Gross Domestic Product (GDP)
The U.K.’s Gross Domestic Product (GDP) report is expected to show the economy expanding 0.7% in the second-quarter of 2015, and a faster rate of growth may boost the appeal of the British Pound and generate a near-term advance in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.
What’s Expected:
Why Is This Event Important:
Signs of a stronger recovery may spur a greater dissent within the Monetary Policy Committee (MPC) as a growing number of central bank officials adopt a more hawkish outlook for inflation, and we may see a tightening race between the BoE & Fed to normalize monetary policy as Governor Mark Carney continues to prepare U.K. households and businesses for higher borrowing-costs.
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
CBI Business Optimism (JUL) |
1 |
8 |
|
Industrial Production (MoM) (MAY) |
-0.2% |
0.4% |
|
GfK Consumer Confidence (JUN) |
2 |
7 |
Improved confidence along with the pickup in business outputs may encourage a strong GDP print, and a marked expansion in economic activity may boost interest rate expectations as the BoE remains on course to lift the benchmark interest rate off of the record-low.
Risk: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
Retail Sales ex Auto Fuel (MoM) (JUN) |
0.4% |
-0.2% |
|
Jobless Claims Change (JUN) |
-9.0K |
7.0K |
|
Construction Output s.a.(MoM) (MAY) |
0.8% |
-1.3% |
Nevertheless, easing job growth paired with the slowdown in private sector-consumption may drag on the growth rate, and a dismal development may lead to further delay in the BoE’s normalization cycle as the central bank remains unanimous in preserving the current policy stance.
How To Trade This Event Risk(Video )
Get The News You Want
Bullish GBP Trade: U.K. GDP Expands 0.7% or Greater
- Need green, five-minute candle following the GDP print to consider a long British Pound trade.
- If market reaction favors bullish sterling trade, long GBP/USD with two separate position.
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit, set reasonable limit.
Bearish GBP Trade: 2Q Growth Rate Falls Short of Market Forecast
- Need red, five-minute candle to favor a short GBP/USD trade.
- Implement same setup as the bullish British Pound trade, just in reverse.
Potential Price Targets For The Release
GBP/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- Lack of momentum to close above 1.5630 (38.2% retracement) to 1.5650 (38.2% retracement) may keep GBP/USD confined with the wedge/triangle formation carried over from June as market participants weigh the outlook for monetary policy.
- The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since July 1, but we’re seeing the ratio come off of extremes as it narrows to +1.35, with 57% of traders long the pair.
- Interim Resistance: 1.5750 (23.6% retracement) to 1.5780 (38.2% retracement)
- Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement)
Read More:
GBP/USD Approaches Near-Term Resistance Ahead of 2Q U.K. GDP Report
Price & Time: What Is GBP Volume Telling Us?
Impact that the U.K. GDP report has had on GBP during the last release
|
Period |
Data Released |
Estimate |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
1Q 2015 |
04/28/2015 08:30 GMT |
2.6% |
2.4% |
+12 |
+117 |
1Q 2015 U.K. Gross Domestic Product (GDP)
The 1Q U.K. Gross Domestic Product (GDP) fell short of market expectations as the preliminary reading showed an annualized 2.4% rise in the growth rate following the 3.0% expansion during the last three-months of 2014. The slower rate of growth may encourage the Bank of England (BoE) to preserve its wait-and-see approach throughout 2015, but Governor Mark Carney may continue to prepare U.K households and businesses for higher borrowing-costs as the central bank head anticipates a stronger recovery in the second-half of the year. The market reaction to the dismal GDP print was short-lived, with GBP/USD snapping back above the 1.5200 handle, and the pair tracked higher throughout the North American trade to end the day at 1.5337.
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