GBP/USD Breaks Above Key Trendline Despite Soft UK GDP

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GBP/USD Breaks Above Key Trendline Despite Soft UK GDP

Today, we got preliminary GDP data out of the UK for Q1. Let’s take a look at the data point and the reaction in the GBP/USD pair.

Growth in Q1 came in at 0.3%, which disappointed forecasts calling for a 0.5% reading. That was already a low expectation relative to the 0.6% in Q4 2014. As the chart below shows, growth has been steadily declining since Q1 2014 when it read 0.9%.

uk gdp q1 2015
(click to enlarge; source: forexfactory.com)

On the year, UK’s economy grew 2.4%. The BoE had a rosier outlook than this and therefore might become slightly more dovish with the GDP failing to rebound.

Let’s take a look at the reaction in GBP/USD:
4H Chart 4/28
gbpusd 4h chart 4/28
(click to enlarge)

The 4H chart shows that the market has been persistently bullish since rebounding from a new low on the year at 1.4564. The 200-, 100-, and 50-period simple moving averages (SMAs) are turning up and in bullish alignment with price holding above all three. The RSI has tagged above 70 and held above 40, reflecting maintenance of the bullish momentum.

The market seems to be brushing off the soft GDP data as price bounced off 1.5150 after the initial reaction to the data. It then sprung up to make a new high on the month with the bullish trend intact in the short-term.

GBP/USD Daily Chart 4/28
gbpusd daily chart 4/28
(click to enlarge)

The daily chart shows that the trend since mid-2014 is broken as price rallies above a falling trendline coming down from the 1.7191 high. Price has broken above the 100-, and 50-day SMAs as well, and the RSI cleared 60, We are likely in a significant consolidation, with a bullish correction in the short-term.

If price can hold above 1.50, the current breakout should have upside risk towards at least the 1.5485-1.5552 support/resistance pivot area. Then, we should look for a bearish attempt towards 1.50 especially if a bearish divergence between price and the RSI develops.

Why did GBP/:USD rally despite weak UK data? Simple, it is dominated by USD-flow. We can see USD sold across the board. Still the weak GDP data should be a reason we want to look for resistance in that 1.5485-1.5552 area for GBP/USD.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.