GBP/USD: Trading the British Second GDP Feb 2014

British GDP, published each quarter, measures the production and growth of the UK 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 pound.

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

Published on Wednesday at 9:30 GMT.

Indicator Background

British  Second Estimate  GDP is released after Preliminary GDP. Although the Preliminary release  has the most impact, Second Estimate GDP should also be  treated as  a market-mover and any unexpected reading could quickly affect the movement of GBP/USD.

The indicator has looked sharp in recent releases, reflecting strong growth by the British economy. The Q3 release came in at 0.8%, matching the forecast. The markets are not expecting any dramatic changes in Q4, with the estimate standing at 0.7%, thus confirming the first estimate.

Sentiments and levels

The pound hit some turbulence last week but still remains at high levels. Inflation is within the BOE’s 2.0% target, and there is increasing speculation that the Bank may have to consider a rate hike in the near future. Over in the US,  recent releases  have missed expectations,  but market sentiment remains upbeat and QE tapering is expected to continue, which would be a vote of confidence from the Federal Reserve. So,  the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7180, 1.6990, 1.6705, 1.66, 1.6475 and 1.6343.

5 Scenarios

1. Within expectations: 0.5% to 0.9%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.9% to 1.2%: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 1.2%: A surge in GDP would push GBP/USD downwards, and a second resistance line might be broken as a result.
4. Below expectations: 0.1% to 0.4%: A lower GDP figure than predicted could cause the pair to climb and drop below one support level.
5. Well below expectations: Below 0.1%. A reading of zero or in negative territory could result in GBP/USD breaking  below  a second level of support.

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

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