GBP/USD to Mount Larger Rebound on Upbeat 3Q U.K. GDP Report

3Q U.K. GDP to Expand Another Annualized 2.4%- Slowest Since 3Q 2013.

Will Stronger GDP Spur Larger Dissent Within the Bank of England (BoE)?

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

The U.K.’s Gross Domestic Product (GDP) report may heighten the appeal of the sterling and spur a larger rebound in GBP/USD as the economy is expected to expand another annualized 2.4% in the third-quarter of 2015.

What’s Expected:

GBP/USD 3Q GDP

Why Is This Event Important:

Even though the economy grows at the slowest pace in since 2013, data prints pointing to a more sustainable recovery may keep the Bank of England (BoE) on course to normalize monetary over the near to medium-term and generate a greater dissent within the central bank as the outlook for growth and inflation improves.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Auto Fuel (MoM) (SEP)

0.4%

1.7%

Industrial Production (MoM) (AUG)

0.3%

1.0%

Mortgage Approvals (AUG)

69.8K

71.0K

The pickup in private-sector consumption accompanied the rise in business outputs may offer a better-than-expected GDP print, and signs of a stronger recovery may encourage a bullish reaction in GBP/USD as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Jobless Claims Change (SEP)

-2.2K

4.6K

Average Weekly Earnings ex. Bonus (3MoY) (AUG)

3.0%

2.8%

Trade Balance (AUG)

-2.150B

-3.268B

Nevertheless, waning demand from abroad paired with the slowdown in job growth may drag on the real economy, and a dismal report may push the BoE to further delay its normalization cycle in an effort to further mitigate the downside risks surrounding the region.

Bullish GBP Trade: U.K. Economy Expands Another 2.4% or Greater

  • Need green, five-minute candle following the GDP report to consider a long British Pound trade.
  • If market reaction favors bullish sterling trade, long 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 GDP Report Disappoints

  • Need 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

GBPUSD Daily

GBP/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • GBP/USD appears to have carved a near-term top in October amid the lack of momentum to hold above the 1.5500 handle, while the Relative Strength Index (RSI) largely retains the bearish formation carried over from May.
  • Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since August 21, but the ratio remains off of recent extremes as it sits at +2.04, with 67% of traders long, while open interest stands 6.3% below its monthly average going into the end of October.
  • Interim Resistance: 1.5640 (50% expansion) to 1.5650 (38.2% expansion)
  • Interim Support: 1.5089 (May low) to 1.5090 (61.8% retracement)

Source: dailyfx.com

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