TheNews

- Will the Bank of England’s (BoE) Inflation Report (May 13) Highlight a Slower Recovery?

Trading the News: U.K. Gross Domestic Product (GDP)

The U.K.’s 1Q Gross Domestic Product (GDP) report may dampen the appeal of the British Pound and undermine the near-term rebound in GBP/USD as the growth rate is expected to increase an annualized 2.6% after expanding 3.0% during the last three-months of 2014.

What’s Expected:



Why Is This Event Important:

Threats of a slower recovery may encourage the Bank of England (BoE) to adopt a more dovish tone while delivering its quarterly inflation report on May 13, and the central bank may look to further delay its normalization cycle in an effort to stem the downside risks surrounding the region.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Retail Sales ex Auto (MoM) (MAR)	0.5%	0.2%
Average Weekly Earnings inc Bonus (3MoY) (FEB)	1.8%	1.7%
Trade Balance (Pound) (FEB)	-1.5000B	-2.859B

Weakening demand from home and abroad may pave the way for a marked slowdown in the growth rate, and a dismal GDP print may trigger a near-term topping process in GBP/USD as market participants scale back bets for higher borrowing-costs in the U.K.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Employment Change (3Mo3M) (FEB)	170K	248K
Manufacturing Production (MoM) (FEB)	0.4%	0.4%
Purchasing Manager Index- Manufacturing s.a. (MAR)	54.4	54.4

Nevertheless, the ongoing improvement in the labor market paired with the rebound in business outputs may generate a positive development, and an unexpected pickup in GDP may spur a larger advance in British Pound as it boosts interest rate expectations.

How To Trade This Event Risk

Bearish GBP Trade: U.K. GDP Slows to Annualized 2.6% or Lower

• Need red, five-minute candle following the GDP print to consider a short British Pound trade
• If market reaction favors bearish sterling trade, short GBP/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish GBP Trade: 1Q Growth Rate Exceeds Market Expectations

• Need green, five-minute candle to favor a long GBP/USD trade
• Implement same setup as the bearish British Pound trade, just in reverse

Potential Price Targets For The Release
GBP/USD Daily Chart

• Ongoing series of higher highs & lows favors a further advance in GBP/USD; could be at risk for a reversal as the RSI threatens the bearish momentum carried over from July 2014.
• Interim Resistance: 1.5340 (78.6% retracement) to 1.5350 (50% retracement)
• Interim Support: 1.5015 (50% expansion) to 1.5050 (50% retracement)

GBPUSD M5: 37 pips price movement by GBP - GDP news event :



The U.K. economy expanded at a slower-than-expected pace during the last three-months of 2014 as the growth rate climbed an annualized 2.7% following a 2.6% rise in the third-quarter. The lackluster recovery may encourage the Bank of England (BoE) to largely retain a wait-and-see approach in 2015, but we may see Governor Mark Carney continue to prepare U.K households and businesses for higher borrowing-costs as the central bank looks for a pickup in economic activity. The initial bearish reaction was short-lived as GBP/USD pushed above the 1.5100 handle ahead of the North America trade, with the pair ending the day at 1.5165.

--- Written by David Song, Currency Analyst and Shuyang Ren

More...