British Pound Outlook Remains Bearish Ahead of UK GDP Revisions

Looking to this week’s event risk, Tuesday’s data is expected to show that total business investment fell for the fifth straight period in the third quarter, this time at a rate of 3.9 percent. Declines generally don’t bode very well for broader growth, as companies that aren’t investing aren’t likely to be experiencing improved activity or hiring workers. On the other hand, the BBA’s measure of loans approved for house purchases is projected to rise for the seventh straight month in October to 44,000 from 42,088, signaling percolating demand and potentially, increasing prices.

On Wednesday, the second reading of UK GDP for the third quarter is anticipated to be revised slightly higher to a quarterly rate of -0.3 percent from -0.4 percent, and an annual rate of -5.1 percent from -5.2 percent. This will continue to reflect the sixth straight quarter of contraction, and the only way the British pound is likely to respond in a positive way is if GDP surprisingly rises on a quarterly basis. That said, traders also need to keep in mind that US markets will be closed on Thursday for the Thanksgiving holiday and will close early on Friday, and as a result, volumes will be lower than usual, which may contribute to either flat price movements or extremely choppy trade. The latter may dominate, though, as US-based event risk will be very high. From a technical perspective, FXCM SSI – a contrarian indicator – positioning recently flipped to net long, suggesting GBPUSD could be in for further declines. Additionally, the pair’s break below a rising trendline drawn from the October 13 lows and bearish weekly candle formation leads us to maintain a bearish outlook on GBPUSD.