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A Contracting U.K. Economy Contradicts Technical Call For Pound Bottom

Friday, 24 October 2008 04:14:00 GMT  |  John Rivera, Currency Analyst

Will the third time be the charm for the technical call for a Pound bottom ahead of a major event risk? We weren’t buying the technical outlook ahead of retail sales, but the backward looking GDP measure may not have a significant enough impact to override technical factors.

Fundamental Outlook

Will the third time be the charm for the technical call for a Pound bottom ahead of a major event risk?  We weren’t buying the technical outlook ahead of retail sales, but the backward looking GDP measure may not have a significant enough impact to override technical factors.  The Pound is becoming oversold which is demonstrated by the  -1.42 FXCM SSI reading. The contrarian indicator combined with technical outlook is a good sign that it may be time to go long the Pound. However, the U.K. economy is expected to have contracted by 0.2% in the third quarter and if we get a lower revision of the second quarter’s stagnate growth, then the British economy would already be in a technical recession. Governor Mervyn King acknowledging that the country is in a recession earlier in the week could lesson the blow of the dour fundamental data. Yet, a more pronounced decline in growth could reignite global recession concerns and resume the recent flight to safety which has benefitted the dollar.

                                                                                                                                    

Technical Outlook

The GBPUSD is naturally in a position similar to the EURUSD.  The most recent drop, from 1.75, is from a triangle so a return to the center of the triangle near 1.71 is a reasonable expectation. 

 

For More Technical Analysis Visit the Daily Technical Report

 

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

 

 

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