Everyone’s going to be looking at the GBP/USD when the UK GDP data comes out. But don’t overlook the EUR/GBP. In fact, l believe GBP/USD will be harder to trade because of the USD-story has been dominating the pair. The EUR/GBP however has a clear bearish trend, and after a little under a month of consolidation, it should be ready to head lower, UK data permitting. Let’s take a look at what’s expected for the upcoming GDP data, and how that might affect the EUR/GBP.
UK Preliminary GDP q/q (Q1)
(click to enlarge; source: forexfactory.com)
Economists expect the GDP to have grown 0.5% in Q1, which is a tick lower than Q4 2014. In fact, if we look at the GDP data throughout 2014, we can see that it has been sliding since hitting 0.9% in Q1 2014. This steady decline is a concern that could put a leash on the GDP against the EUR. However, we should not expect any strong EUR/GBP bounce unless the GDP drops close to 0 or is negative. The 0.3-0.5% range might give the EUR/GBP some resilience in the short-term but the medium and long-term downtrend should remain in play.
When we look at the 4H chart, EUR/GBP looks bearish throughout April. Indeed it has revived a downtrend after consolidating in March when it rebounded from the low on the year of 0.7014 to 0.7384.
Note price holding below the moving averages and the RSI holding under 60 after tagging 30. Now, if after tomorrow’s UK GDP data, price pushes above 0.72 and the falling trendline, we might see further consolidation with some near-term bullish outlook, especially if the RSI also pops up above 60. This scenario will likely follow a weaker than expected GDP. But as mentioned before, as long as its not 0.1% or lower, the EUR/GBP should remain bearish in the medium-term.
In the bullish scenario, we should expect resistance around 0.74, and limit even an aggressive bullish outlook to the 0.75-0.76 area. We should instead favor the bearish outlook. IF the GDP is 0.5%, the prevailing trend might still continue and a break below 0.71 would open up 0.70-0.7015. A reading of 0.6% or higher would make this bearish continuation scenario even more likely.
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