GBP/USD defends 1.30 as UK GDP matches forecasts, ahead of FOMC

If the dollar were to head further lower, then the GBP/USD could be the next pair to rally given that all the other dollar crosses have had their fair share of the fun already, except sterling. Supporting this view, data from the UK hasn’t been bad this week...

The market’s focus will be on the FOMC later on today. Investors will be fully anticipating the Fed to come across as more dovish than hawkish. But that view may already be priced in, so it will be interesting to see how the dollar will react. The US currency has bounded back a touch over the past couple of days, especially against her weaker rivals such as the Swiss franc and Japanese yen. But against the euro, it still remains downbeat despite yesterday’s mild sell-off in the EUR/USD pair. If the dollar were to head further lower, then the GBP/USD could be the next pair to rally given that all the other dollar crosses have had their fair share of the fun already, except sterling.

Supporting this view, data from the UK hasn’t been bad this week, so it makes sense for the cable to go higher, if the dollar were to weaken further. Indeed, growth figures released this morning by the ONS showed the UK economy expanded at a faster pace in the second quarter compared to the first quarter. GDP expanded 0.3% in Q2 versus to 0.2% in Q1. The pound didn’t show any positive reaction in the immediate aftermath of the data release as the number was bang in line with the expectations. Yet equally, the sellers had little desire to show up. Consequently, the GBP/USD bounced at around the key 1.30 handle and the EUR/GBP headed lower.

From a technical perspective, the cable has already made a series of higher highs and higher lows this year. This bullish structure of price has been objectively confirmed by rising moving averages: 21-, 50- and 200-period moving averages are all in the correct order and now point higher too. Broken resistance levels have turned into support. Now the cable must move away from the 1.30 psychological hurdle to encourage fresh buying. Supporting the bullish case is evidence that the sellers are continually getting trapped. For example, yesterday’s doji candle would normally be a bearish sign. However, once the low of yesterday’s range broke, there was very little follow-through.

All that being said, the day has just started and the dollar could very easily make a comeback in the event the Fed delivers a hawkish surprise later on today, or if US GDP comes in surprisingly strong on Friday. So things could turn bearish for the cable very quickly. However, at the moment, the path of least resistance is still to the upside. A deceive break above the recent swing high of 1.3125 would be ideal for the bulls.  

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account