GBP/USD: Trading The British Preliminary GDP

Jan. 28, 2016 2:09 AM ET
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British Preliminary GDP, one of the most important economic releases, is published each quarter. GDP measures production and growth of the economy, and is considered by analysts as one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the pound.

Indicator Background

British Preliminary GDP is a key economic indicator, and provides an excellent indication of the health and direction of the British economy. Traders should pay close attention to the GDP release, as an unexpected reading could affect the direction of GBP/USD.
Final GDP in Q4 posted a gain of 0.4%, shy of the forecast of 0.5%. The estimate for Preliminary GDP in Q4 stands at 0.5%.

Sentiments and levels
The Federal Reserve is unlikely to raise rates anytime soon, but the safe-haven greenback has benefited from market jitters in early 2016. With the US economy outperforming that of the UK, there is room for the pound to lose ground and possibly slip below the symbolic 1.40 level.. So, the overall sentiment is bearish on GBP/USD towards this release.
Technical levels, from top to bottom: 1.4635, 1.4562, 1.4346, 1.4227, 1.4135 and 1.40.
5 Scenarios

  1. Within expectations: 0.2% to 0.8%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 0.9% to 1.3%: An unexpected higher reading can push the pair above one resistance line.
  3. Well above expectations: Above 1.3%: A surge in the reading could push the pound higher and the pair could break a second line of resistance as a result.
  4. Below expectations: -0.3% to 0.1%: In this scenario, GBP/USD could drop below one support level.
  5. Well below expectations: Below -0.3%. A very weak reading could hurt the pound, and the pair could fall below a second level of support.

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