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The Gross Domestic Product (GDP) indicator  is a measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Friday at 9:30 GMT.

Indicator Background

GDP is released quarterly, which often makes the indicator a market-mover. The indicator provides an  important snapshot  of the health and direction of the economy in the past quarter.

After a strong 0.5% increase in GDP in the November reading, the markets are predicting a 0.2% drop. This would be the first contraction in a year, and any dip into negative territory is sure to get the market’s attention, and could hurt the pound. Traders should keep in mind that the market forecasts for GDP are quite accurate, so the chances of a drop in GDP this month are high.

Sentiments and levels

Retail sales was the bright spot in the January economic data, recording a  0.9% jump. Although the UK economy is sluggish, the pound has done very well against the dollar in 2012, and could continue to rally.

Technical levels, from top to bottom: 1.60, 1.59, 1.5755, 1.5720, 1.5629, 1.5520 and 1.54.

5 Scenarios

  1. Within expectations: -0.5% to 0.1%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 0.2% to 0.5%: An unexpected reading  of zero or higher  could send  the pair  well above  one  resistance line.
  3. Well above expectations: Above 0.5%: The chances of such a scenario are low. Such an outcome would push GBP/USD   upwards, and a second  resistance level might be broken as a result.
  4. Below expectations: -0.9% to -0.6%:   A lower GDP figure than predicted could cause the  pair to  drop and break one support level.
  5. Well below expectations:  Below -1.0%. In this scenario, GBP/USD will  likely drop  and could break two or more support levels.

For more on the pound, see the GBP/USD forecast.