Following the April 17 decline from $1.53 tops to the $1.52 lows, the GBP/USD has been trading sideways between $1.5220 and $1.5295. The Cable has been looking vainly for a catalyst to break range in any direction but Thursday's U.K. GDP could be different.
Currently the GBP/USD is trading at $1.5260, 0.16% still positive with mixed indicators in the 1-hour chart. Momentum is pointing bearish while the MACD and the CCI are bullish and the Stochastic is neutral. As for the short term, next resistance at $1.5291 (10 DMA) followed by $1.5370 (high April 17) and then $1.5386 (high April 15). On the flip side, a breakdown of $1.5227 (hourly low April 24) would expose $1.5200 (the March low) and then $1.5190 (38.2% of $1.4832-$1.5412).
On Thursday, the market will be focusing the U.K. Q1 GDP preliminary figures as consensus is Britain avoiding the triple-dip recession. However, the spectrum of the negative reading continues to hover over markets. According to market forecasts, economic activity is expected to expand 0.1% quarter over quarter, leaving behind the previous 0.3% contraction. On a yearly basis, the GDP is expected to grow 0.3% vs. 0.2% in the previous print.
RBS' analyst's team expects the same 0.1% increase in the quarterly basis but they are more optimistic with 0.4% growth year to year:
The economy contracted in the final quarter of 2012 (-0.3% quarter over quarter) but we expect a technical triple-dip recession to be narrowly avoided with growth of 0.1% quarter over quarter, 0.4% y/y, in Q1 2013.
The U.K. economy remains in a precarious state - a state of 'crisis' in the words of BoE Governor-elect Mark Carney - with weak external demand, domestic deleveraging and overshooting inflation combining to weigh on real output.
Speaking about the GBP possible reactions, "a drop in GDP growth should drive the GBP/USD below $1.52 and send the pair towards $1.50," BK Asset Management's analyst Kathy Lien comments. "With the recent decline in commodity prices and increase in the value of the GBP, the central bank has less to be worried about when it comes to inflation and its about time that they focus on boosting growth." Lien thinks that "even if a triple dip recession is avoided, unless GDP grew by 0.5% or more," She doesn't "expect the GBP/USD to break above $1.54."
Lien points out that BoE Governor King's "real question is whether he wants to announce a major change in monetary policy so close to the end of his term." King "will only lead three more BoE meetings before handing his post over to Mark Carney," comments Lien. "Then again, the data could show that the U.K. economy can't wait any longer for stimulus. "
In a wider picture, RBS expects U.K. to grow 0.7% in the whole 2013, "which would be the fifth year in six where GDP growth has been just 1% or lower," points out the bank. RBS expects the GBP/USD to decline to 1.4600 in the 3 month window.
Other banks that are forecasting declines in the Cable for the next 3 months are Goldman Sachs ($1.4900), HSBC ($1.4850), BoA Merrill Lynch ($1.4900) and ING ($1.4500); On the other side, TD securities expects the Cable to rise to $1.5900.