Key Points:
- Cable has a torrid session on Friday following GDP shock.
- UK Preliminary GDP surprises market at 0.2% (0.3% exp).
- Watch for continued bearish activity in the week ahead.
The cable was under pressure last week following news that the UK Q1 GDP would be revised lower to 0.2%. This was a relatively large surprise, and along with the ongoing political turmoil ahead of the general election, saw the pair collapse by over 130 pips during Friday’s session to close the week out around the 1.2803 mark. However, it remains to be seen if this trend will continue in the coming days…so let’s review last week’s events with a view to assessing the week ahead.
The cable experienced a highly negative week following the release of the latest UK GDP figures for Q1 which showed a decline to 0.2% from the estimate 0.3% print. This was a relatively significant negative result and caught the market largely by surprise, which saw the support drop away and price action decline over 130 pips for the session. In addition, the ongoing turmoil around the UK general election is also impacting the pair with the conservative government currently hanging on to a five seat majority based on the latest polls. Subsequently, the pair ended the week sharply lower around the 1.2803 mark which coincides with the 100 day MA.
Looking ahead, there are some important economic events due out for the cable in the week ahead with the UK Manufacturing PMI and U.S. NFP data due for release. The Manufacturing PMI is likely to be relatively closely watched given the recent successive returns which have fallen into the growth range. The estimate has the PMI result coming in at the 56.5 mark which should prove to be relatively accurate for the pair. In addition, there is a bevy of U.S. economic data due for release with the Non-Farm Payroll figures likely to prove the most contentious data point. Most economists have the result coming in at 185k but, as always, predicting the correct result is akin to winning the lottery given some of the underlying measurement issues. Subsequently, expect volatility as the final NFP numbers are released and the market takes stock of their implications.
From a technical perspective, last week’s sharp fall has taken price action lower to test the 100 day MA. However, the decline is likely not finished yet with the RSI Oscillator still within neutral territory indicating that there is plenty of room to move on the downside. In addition, there remains a bearish divergence on the 4-hour MACD which may be suggesting further downside moves ahead. Subsequently, our initial bias for the week ahead remains bearish considering the aforementioned factors. Support is currently in place for the pair at 1.2775, 1.2625, and 1.2512. Resistance exists on the upside at 1.3045, 1.3282, and 1.3440.
Ultimately, the coming week is likely to test the bounds of near term support, especially given the bearish disposition and the fact that the oscillators still have plenty of room to move on the downside. However, there are also plenty of fundamental risk events pending in the week ahead so there could be volatility to be seen. Regardless, the cable’s likely to continue depreciating over the next few days as the pair stabilises post GDP shock.