GBP/USD: Trading the British GDP

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 Wednesday at  8:30 GMT.

Indicator Background

GDP is released quarterly, and provides an excellent indication of the health and direction of the economy in the past quarter.

British GDP dropped in Q4 of 2011 by 0.2%, disappointing the markets, as the indicator  posted the worst reading in over a year. The market forecast for Q1 calls for modest growth of 0.1%. Will the indicator bounce back into positive territory?

Sentiments and levels

GBP/USD  was up sharply  last week, as the pair climbed as high as the mid-1.61 level. What’s next for the pound? With higher inflation,  reasonable unemployment figures  and stronger consumer spending, we   could see the central bank could  discuss  hiking interest rates rather than adding to QE.

Technical levels, from top to bottom: 1.6474, 1.6356, 1.6265, 1.6132, 1.6065 ,1.60 and 1.5923.

5 Scenarios

1. Within expectations:  -0.2% to 0.4%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  0.5% to 0.8%: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 0.8%:  Given the sluggish UK economy,  this situation is  unlikely.  This event would be bullish for the pound, and a second resistance line might be broken as a result.
4. Below expectations: -0.6% to -0.3%: In such an outcome, GBP/USD could fall and break one level of support.
5. Well below expectations:  Below -0.6%.  A sharp contraction in GBP would be a real concern for the markets.. In this scenario, GBP/USD could fall and break a second support level.

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