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False Breakouts in GBP/JPY, GBP/USD? USD Steadies Ahead of GDP

False Breakouts in GBP/JPY, GBP/USD? USD Steadies Ahead of GDP

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- We discussed how GBP/JPY and GBP/USD were at critical levels yesterday; today, they appear to be failing in their breakout attempts.

- Q3'16 US GDP is likely to be above +2% annualized ('Goldilocks'-ish), but it's a stark deceleration from the near +4% expectation in early-August, per the Atlanta Fed GDPNow model.

- See the DailyFX Economic Calendar for Friday, October 28.

We'll be getting our first look at Q3'16 US GDP today, but for all intents and purposes, no matter what the outcome, it: (1) won't matter whatsoever in context of the Federal Reserve's November policy meeting next Wednesday; and (2) will be a disappointment in context of 'what could have been' just three months earlier.

For point (1), with US Presidential elections less than a week later (Fed meets on November 2; US elections on November 8), there’s little reason to think that policymakers would want to unmoor volatility with a surprise shift in monetary policy. Second, the Fed, like so many other central banks, rarely acts without ‘justification’ – that is, new economic projections in hand to justify the change in policy; the next summary of economic projections (SEPs) will be released in December.

For point (2), consider that on August 4, the Atlanta Fed's GDPNow forecast called for Q3'16 US GDP at +3.8% annualized. Today, ahead of the report, that reading stands at +2.1%. This particular model has garnered attention over the past year as it has typically been within a tenth of a percentage point (or two) of the actual headline reading. Viewed through this prism, if the US GDP report today simply 'meets' market expectations - +2.5%, according to Bloomberg News - it may be enough to keep market participants content.

See the video (above) for technical considerations in EUR/USD, AUD/USD, USD/JPY, GBP/USD, GBP/JPY, DXY, and the USDOLLAR Index.

Read more: Several Key FX Crosses at Potential Turning Points

--- Written by Christopher Vecchio, Currency Strategist

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