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GBP/USD Eyes 1.7000 as U.K. 1Q Gross Domestic Product (GDP) Picks Up

By , Currency Analyst  and Gregory Marks
29 April 2014 04:00 GMT

- U.K. 1Q GDP to Expand 0.9%- Fastest Pace of Growth Since 2Q 2010

- Annualized Growth Rate of 3.2% Would Be the Highest Since 4Q 2007

Trading the News: U.K. Gross Domestic Product

The advance U.K. 1Q Gross Domestic Product (GDP) report may generate fresh highs in the GBP/USD as the stronger recovery in Britain puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD 1Q GDP

Why Is This Event Important:

A pickup in economic activity may heighten the bullish sentiment surrounding the British Pound as it puts increased pressure on the Bank of England (BoE) lift the benchmark interest rate off the record-low, and Governor Mark Carney do little to halt the appreciation in the sterling as it helps to achieve the 2% target for inflation.

Join DailyFX on Demand to Cover Current British Pound Trade Setups

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales inc Auto (MoM) (APR)

-0.4%

0.1%

Jobless Claims Change (MAR)

-30.0K

-30.4K

Manufacturing Production (MoM) (FEB)

0.3%

1.0%

The resilience in private sector consumption along with the ongoing improvement in the labor market may prompt a marked pickup in the growth rate, and an upbeat GDP report may spur fresh highs in the GBP/USD as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (MAR)

1.6%

1.7%

Construction Output s.a. (MoM) (APR)

-1.3%

-2.8%

Mortgage Approvals (FEB)

75.3K

70.3K

Sticky price growth paired with efforts to cool the housing market may generate a weaker-than-expected GDP print, and a dismal development may spur a larger correction in the GBP/USD as it drags on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Economic Recovery Accelerates

  • Need green, five-minute candle following the GDP print to consider a long British Pound trade
  • If market reaction favors a bullish sterling trade, buy 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: 1Q GDP Disappoints

  • Need red, five-minute candle to favor a short GBP/USD trade
  • Implement same setup as the bullish British Pound trade, just in opposite direction

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Need RSI to Retain Bullish Momentum to See Fresh Highs
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • Interim Support: 1.6400 (61.8% expansion) to 1.6430 (23.6% expansion)

Impact that the U.K. GDP report has had on GBP during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q 2014

01/28/2014 9:30 GMT

0.7%

0.7%

-12

-7

1Q 2014 U.K. Gross Domestic Product (GDP)

GBP/USD 5-Minute Chart

The GBPUSD pair was almost unchanged on the hour and day following fourth quarter GDP results for 2013. The that print the pair traded lower until February 5th and has been on the rise ever since. The breakdown of the results show that distribution, hotels % restaurants outperformed last quarter while electricity/gas, forestry & fishing lagged compared with the third quarter. Current market expectations are calling for a 0.9% QoQ and 3.2% YoY rise.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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29 April 2014 04:00 GMT