Talking Points:
- Gross Domestic Product (YoY)(3QF) Actual 2.6% vs 3.0% Surveyed and 3.0% Prior, missing expectations
- GBP/USD took a nose dive, as UK yearly on year growth outlook is reflected to be worse than anticipated
- Traders should remain watchful of upcoming US Durable Goods Orders to confirm on the definitive market direction
UK’s final 3rd quarter Year on Year GDP growth was released today with a downward revision, to be 2.6% vs the 3.0% growth anticipated. Whilst the quarter on quarter GDP growth figures came in line with expectations at 0.7%, the market saw a sell off for the Pound vs US dollars past the day’s low to 1.5557. Uninspiring 3rd quarter UK Total Business Investment final changes further fuelled negative sentiment on the Sterling, with QoQ figures at -1.4% vs -0.7% expected. UK 10-Year Gilts advanced higher following the release, with yield falling to 1.81% or 2 basis points.
The lacklustre economic figures published today reinforce a soft short-term growth outlook for the UK, as is the same situation with its European neighbours that are struggling with disinflation and possibly deflation. Negativity on the Sterling is also reflected in the long term downward trend for GBP/USD since its July 2014 peak at 1.7187. The US’s robust economic recovery is building market expectation for a rate hike by the Federal Reserve sooner rather than later, or as Fed Chairman Janet Yellen had hinted, as early as two more FOMC meetings away. The market will be looking ahead for the US November Durable Goods Orders due to be released at 13:30 GMT, to offer further guidance on the state of the US economy. Durable goods orders are expected to come in at 3.0%, higher than the 0.3% last month. A release that is worse than expected may shed some of the US Dollar strength and possibly see a rally of GBP/USD as a result.
Taking technical analysis into consideration, Ilya Spivak mentions near-term resistance at 1.5772 (23.6% Fib. Retracement) and support at 1.5553 (23.6% Fib. Expansion). He remains flat on GBP/USD as “prices [are] offering no clear-cut and actionable signal to initiate a long or short trade”. Meanwhile, according to the DailyFX Speculative Sentiment Index, the ratio of long to short positions in the GBP/USD stands at 1.60 as 62% of FXCM retail traders are long.
GBP/USD (5 Min Chart) - Created using Marketscope 2.0
