GBPUSD Reacts to UK GDP

The UK released its 2^nd quarter GDP figures a few hours ago at a clip of -0.7 vs expectations of -0.2%.  Needless to say, the GBPUSD fell on the news, dropping nearly 100 pips from its highs to a low of 1.5468. The -0.7% GDP figure was affected by weak manufacturing and construction output.    On the political front, the GDP news is putting Chancellor George Osborne under fire as his austerity policies that he has implemented are cutting the UK’s deficit, but leaving the country exposed to recession.

Back to Forex and the GBPUSD
Even after falling on the news, the GBPUSD looks well bid as its longer term support of 1.5450.  If you take a look at the chart below, the GBPUSD has been in a two month trading range between 1.5450 & 1.5750.  The second chart shows the GBPUSD over the last few days where it had been falling on the overall strength of the dollar, before settling into a trading range just above its longer term support.





Going into today’s GDP figures, the GBPUSD looked like a potential downside breakdown candidate. The combination of the pair’s negative momentum plus a bad figure would have thought to be enough to break the longer term 1.5450 support.  As such, by bouncing off its lows earlier today, the GBPUSD is showing that demand remains steady in the pair.  Therefore, if the pair manages to continue trading today above 1.5470 it could set up positive momentum going forward.

Olympics Looms

One item for Forex traders to consider though is the Olympics (sorry, if we are talking about the UK, I had to put that in their).  Currently, even after the today’s worse than expected GDP figure, there  is optimism among economists that the country will experience a jolt of growth due to the Olympics.  Therefore, if for any reason the event creates any economic worries, it could be one of those “straw that broke the camel’s back” situations that would drive buyers to back off of their GBPUSD bids.