The key fundamental factor for the pound during the 1/27 session was the preliminary estimate of UK GDP for Q4. According to the Office of National Statistics (ONS), GDP grew 0.5% in Q4 compared to Q3 of 2014. This was the lowest growth rate in 2014 as it has been sliding after a good run in 2013. Q3’s growth rate was 0.8%. Forecasts were for a reading around 0.6%.
“The increase in GDP followed growth of 0.8% in Q3 2014. In the latest quarter there were increases in two of the four main aggregates; output increased by 0.8% in services, 1.3% in agriculture. In contrast output decreased by 1.8% in construction and 0.1% in production. “(ONS):
Here is the latest GDP infographic from the Office of National Statistics
(source: Office of National Statistics)
The BoE has been expecting a downturn in growth and inflation, so the trend is not a surprise but the 0.5% print was worse than most forecasts. The GBP should see a bit of pressure at least in the short-term. Let’s take a look at the reaction in GBP/USD and EUR/GBP.
The 1H GBP/USD chart shows a market that has been consolidating since hitting a low on the year at 1.4950. It is now pushing at 1.51 which is a common support area in a previous consolidation. Also note the 200-hour SMA working as resistance when the UK GDP data was released. Now, the next key fundamental factor for GBP/USD will be tomorrow’s FOMC meeting. If the market is cautious and pricing in a delay in rate hike, the GBP/USD might still have some upside risk towards the 1.52 area heading into the FOMC meeting.
However, if price can hold below 1.51, the pressure will be on the 1.50-1.5025 area, below which a bearish continuation is likely to occur.
The EUR/GBP fell to 0.7405 to start the week. It has been drifting sideways a bit, but after the GDP release, it popped higher. The reaction suggests at least some short-term consolidation, or bullish correction in this pair, but we should limit this to the short-term because we know that the ECB has just announced QE last week so the euro should be even more bearish.
If there is a bullish correction, limit the outlook to 0.7595-0.76, a previous support level and where the 200-hour SMA resides at the moment.
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