GBP/USD: Trading the British GDP

The  British Gross Domestic Product (GDP) provides 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 higher than the market forecast is bullish for the British pound.

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

Published on Thursday at 8:30 GMT.

Indicator Background

The British GDP, a key economic indicator,  provides an excellent  snapshot of the health and direction of the UK economy. Traders should pay particular attention to this quarterly indicator, as any unexpected reading could change the direction of GBP/USD.

GDP  slumped in Q4 of 2011, contracting by 0.2%, matching the  the market estimate. The forecast  for Q1 also stands at  -0.2%, indicating ongoing weakness in the UK economy.  Will the indicator surprise the markets with an improved performance for the May reading?

Sentiments and levels

The pound  is reeling from  a horrendous May, and the free fall could well continue. The recession in Europe is  deepening, and there is louder talk of    Greece leaving the euro-zone. These events are sending nervous investors to safe haven currencies such as the dollar, and the greenback is taking full advantage. Thus, the overall sentiment  continues to be  bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.60, 1.5930, 1.5805, 1.5750, 1.5648 and 1.5603.

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 higher reading can send the pair  above one  resistance line.
3. Well above expectations: Above 0.5%: A very strong  reading could push GBP/USD upwards, and  two or more resistance lines  could be broken as a result.
4. Below expectations: -0.9% to -0.6%: A GDP figure in deep negative territory could cause the pair to  fall and  drop below  one support level.
5. Well below expectations: Below -0.9%. In this scenario, GBP/USD could break two or more levels of support.

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