GBP/USD: Trading the British GDP January 23 2013

British GDP (Gross Domestic Product)  is a key release and is published each quarter. GDP measures production and growth of the economy, and is considered by analysts  to be  one the most important indicators of economic activity. A reading which is  higher 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

British GDP is a key economic indicator, and provides an excellent indication of the health and direction of the British economy. Traders should pay close attention to the GDP release, as an unexpected reading could affect the direction of GBP/USD.

British GDP looked sharp in Q3 of 2012, as it  climbed by 1.0%. This was  the indicator’s  first gain after three straight declines.The markets are expecting a weak reading for Q4, with a forecast of a 0.1% decline. Will the indicator again surprise the markets with a strong reading?

Sentiments and levels

The UK economy has not shown much life of late, although this week’s unemployment claims was a welcome exception. The US recovery continues to be a question mark, as indicators continue to point in  both directions. The  pound has taken a tumble in January,  has now fallen into the mid-1.58 range. With the UK economy struggling under strict austerity measures, and the US likely facing more fiscal challenges in February, the pound will have a tough time trying to establish any upward momentum. So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5992, 1.5930, 1.5850, 1.5750, 1.5648, and 1.5516.

5 Scenarios

1. Within expectations: -0.4% to 0.2%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.3% to 0.6%: An unexpected higher reading can push the pair above one resistance line.
3. Well above expectations: Above 0.6%: An surge in the reading would likely help the pound, and the pair could break a second line of resistance as a result.
4. Below expectations: -0.5% to -0.8%: In this scenario, GBP/USD could drop below one support level.
5. Well below expectations: Below -0.9%. A  sharp decline  would likely  hurt  the pound, and the pair could fall below a second level of support.

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