UK GDP in-line, GBP/USD bulls watching for a break above 1.3900
Matt Weller, CFA, CMT August 12, 2021 2:30 PM
The GDP report highlights the stop-and-start nature of the economic recovery in the UK, where the start of Q2 saw strong growth before slowing in June...
After yesterday’s highly-anticipated US Consumer Price Index (CPI) report, traders refocused their attention across the Atlantic to the Q2 UK Gross Domestic Product (GDP) report.
While GDP data is by definition backward-looking and stale by the time it gets released, it can still provide valuable insight on the trends in the underlying economy. As it turns out with this morning’s report, the market got almost exactly what it was expecting: The UK economy expanded by 4.8% in Q2 following a 1.6% contraction in Q1. Digging into the details, both consumption (7.3% growth vs. -4.6% in Q1) and government spending 6.1% growth vs. 1.5% in Q1) were areas of strength, while business investment came in soft (up 2.4%, well below the 6% economists were expecting).
On balance, the GDP report highlights the stop-and-start nature of the economic recovery in the UK, where the start of Q2 saw strong growth before slowing in June. With the July PMI report coming in above expectations and UK COVID cases (hopefully) past their peak, there are reasons for optimism around the UK economy heading into Q3.
Looking at the chart of GBP/USD, rates are pulling back slightly today, keeping the pair within its tight two-week bearish channel. Taking a step back, cable is in the middle of its 6-month range after a false breakdown below 1.3700 midway through last month; from a bigger picture perspective, the false breakdown is a potentially strong bullish signal and raises the odds of GBP/USD eventually retesting the top of its range near 1.4200:
Source: StoneX, TradingView
Viewing the price action since the breakdown as a small “bullish flag” pattern, readers may want to consider buy opportunities if the unit can break above this week’s high in the 1.3900 area (ideally accompanied by an equivalent breakout in the RSI indicator), with room to rally toward 1.4100 or 1.4200 and a stop in the 1.3800 area. A break to new weekly lows would call the bullish bias into question and portend a potential retest of the 200-day EMA near 1.3700.
Looking ahead, the economic calendar is devoid of market-moving data until the UK employment report on Tuesday, a day that also features US retail sales figures, industrial production data, and an update from Fed Chairman Jerome Powell.
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log-in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.