GBP/USD Trading the British Trade Balance

The British Trade Balance indicator, published monthly, focuses on the difference in value between exported and imported goods. 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

Traders should pay close attention to the  reading, since there is a close connection between trade balance figures and  the demand for  local currency.  Stronger exports translate into  foreigners purchasing    more British pounds to pay for  locally produced  goods.  Moreover, a healthy  trade balance is good for both the UK economy and the pound.

The  December indicator brought some sorely needed positive economic new on two accounts. First, the indicator climbed nicely from -9.8B to -7.6B. Second, the reading was much higher than the December forecast of -9.6B. The forecast for this month  predicts a drop to -8.2B.  Will the indicator prove the markets wrong again, and continue on an upward swing?

Sentiments and levels

Economic indicators in the UK  were slightly up last week, including those in  the  manufacturing, construction and services sectors.  However, with Europe  in deep trouble and the UK economy still mired in a slowdown, it remains to be seen whether these figures  are just  a short-lived  upswing.  Across the pond, the US economy appears to be gathering steam, and the dollar is poised to continue its rally against most major currencies. So, the overall sentiment is  bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5815, 1.57, 1.5580, 1.5415, 1.5360, 1.5530  and 1.5270.

5 Scenarios

1. Within expectations: -8.7B to -7.7B: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  -7.6B to -7.0B: An unexpected higher reading can send the pair well above one resistance line.
3. Well above expectations: Above -7.0B: Another strong reading would prop up the GBP, and a second resistance line might be broken as a result.
4. Below expectations:  -9.4B to -8.8B: A sharper decrease than forecast could push GBP/USD downwards, breaking  one level of support.
5. Well below expectations: Below -9.4B:  A weak  figure  would push the pair downwards, possibly breaking two  or more  support levels.

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