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Jignesh Davda

GBP/USD Gunning for Highs After Positive GDP Print

After contracting in the second quarter, GDP in the United Kingdom was flat for the three months to July and rose 0.3% on a monthly basis.

UK data was broadly above expectations as manufacturing and industrial production also beat the analyst estimates. The data seems to suggest that the UK economy is stronger than expected. However, ongoing Brexit uncertainties will tend to continue dominating Sterling fluctuations.

Last week, political events caused volatile swings in GBP/USD. Prime Minister Johnson was delivered a major defeat in Parliament as a bill passed that effectively allows lawmakers to block a no-deal exit. Johnson seems persistent nevertheless to deliver an exit by October 31. Based on his recent communication, I think he will retaliate. For this reason, it seems the volatile swings in the currency are far from over.

GBP/USD is trading at levels not seen in six weeks and I see sufficient technical evidence that a reversal has taken place in the currency pair. At the same time, things can change quickly depending on Johnson’s next move. Among the most popular currencies, I expect Sterling will continue to carry a lot of uncertainty because of where things are with Brexit.

Much of this move up appears to be the markets repricing the probabilities of a no-deal scenario following last week’s events. Brexit developments that threaten this view stand to accompany a sharp move lower. I think that is something Sterling traders should be mindful of in the week ahead.


Technical Analysis

An important level at 1.2300 has broken, putting 1.2373 in focus. The level marks a spike low posted in the early year.

GBPUSD 4-Hour Chart

Aside from the importance of the resistance level, GBP/USD has started to enter oversold territory and upside momentum is slowing. At the same time, I would not look to short the British pound. Unless of course there is a further development on the Brexit front that warrants it.

Bottom Line

  • GBP/USD is catching a boost from positive data released earlier today.
  • Upside momentum is fading a bit after a jump in volatility last week.
  • The next level of upside interest falls at 1.2373.
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