The Pound is a Bit Shaky After the Disappointing GDP Data

The Pound is a Bit Shaky After the Disappointing GDP Data

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
uk gdp q4 2014 pt 1uk gdp q4 2014 pt 2uk gdp q4 2014 pt 3(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.

GBP/USD 1H Chart 1/27
gpbusd 1h chart 1/27
(click to enlarge)

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.

EUR/GBP 1H Chart 1/27
uk gdp 1h chart 1/27
(click to enlarge)

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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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