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Trading the News: U.K. Gross Domestic Product

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by , 10-27-2016 at 08:21 AM (586 Views)
Trading the News: U.K. Gross Domestic Product (GDP)

GBP/USD may stage a larger rebound over the next 24-hours of trade as the advance Gross Domestic Product (GDP) report is expected to show the U.K. economy expanding another annualized 2.1% in the third-quarter of 2016, and signs of better-than-expected growth may encourage the Bank of England (BoE) to retain the current policy throughout the remainder of the year as the central bank sees growing risk of overshooting the 2% target for inflation.

What’s Expected:

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Why Is This Event Important:

The BoE may continue to embark on its easing-cycle over the coming months as ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ but Governor Mark Carney and Co. may largely endorse a wait-and-see approach going into 2017 as central bank officials warn the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate. Even though the threat of a ‘hard Brexit’ instills a long-term bearish outlook for the British Pound, GBP/USD may face a larger correction over the days ahead especially as the BoE appears to be in no rush to implement lower borrowing-costs.

How To Trade This Event Risk
Bullish GBP Trade: U.K. GDP Expands Annualized 2.1% or Greater

  • Need a green, five-minute candle following the report to favor a long GBP/USD trade.
  • If market reaction favors a long sterling trade, buy GBP/USD with two separate position.
  • Set stop at the near-by swing low/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.

Bearish GBP Trade: 3Q Growth Report Falls Short of Market Expectations

  • Need a red, five-minute candle to favor a short GBP/USD trade.
  • Implement same setup as the bullish British Pound trade, just in the opposite direction.

Potential Price Targets For The Release

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  • The longer-term outlook continues to favor the downside targets for GBP/USD as it preserves the bearish trend carried over from September, but the lack of momentum to close below 1.2100 (61.8% expansion) may foster a larger rebound in the exchange rate as the Relative Strength Index (RSI) climbs out of oversold territory (above 30) and breaks out of the downward trend; first topside hurdle comes in around 1.2360 (50% retracement) followed by 1.2460 (61.8% expansion).
  • Interim Resistance: 1.2920 (100% expansion) to 1.2950 (23.6% expansion)
  • Interim Support: 1.1905 (2016-low) and 1.2100 (61.8% expansion)


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