– U.K. GDP to Expand for Third Straight Quarter
– 0.8% Growth Rate to Mark Highest Print Since 2Q 2010

Trading the News: U.K. Gross Domestic Product

The U.K. economy is expected to expand another 0.8% in the third-quarter, and a faster rate of growth may spark fresh monthly highs in the British Pound amid the shift in the policy outlook.

What’s Expected:
Time of release: 10/25/2013 8:30 GMT, 4:30 EDT
Primary Pair Impact: GBPUSD
Expected: 0.8%
Previous: 0.7%
DailyFX Forecast: 0.7% to 0.9%

Why Is This Event Important:
Indeed, there’s growing speculation that the Bank of England (BoE) will normalize monetary policy ahead of schedule amid the stronger-than-expected recovery in the U.K., and an upbeat GDP report may encourage the central bank to adopt a more hawkish tone at the November 7 meeting as the outlook for growth and inflation picks up.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales inc Auto (MoM) (SEP)

0.4%

0.6%

Jobless Claims Change (SEP)

-25.0K

-41.7K

Mortgage Approvals (AUG)

61.5K

62.2K

The larger-than-expected decline in unemployment along with the rise in private sector consumption may prompt an upbeat GDP report, and a faster rate of growth may heighten the bullish sentiment surrounding the sterling as the BoE moves away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance (AUG)

2.6%

2.7%

Industrial Production (MoM) (AUG)

0.4%

-1.1%

Manufacturing Production (MoM) (AUG)

0.4%

-1.2%

However, the deterioration in global trade paired with the slowdown in business outputs may limit the scope of seeing a strong GDP print, and a dismal result may spark a more meaningful correction in the GBPUSD as the pair continues to hold below key resistance.

How To Trade This Event Risk(Video)

Bullish GBP Trade: 3Q GDP Expands 0.8% or Greater
Need green, five-minute candle following the print to consider a long GBPUSD trade
If reaction favors a buy trade, long GBPUSD with two separate position
Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: U.K. Growth Rate Disappoints
Need red, five-minute candle to favor a short GBPUSD trade
Implement same setup as the bullish British Pound trade, just in the opposite direction

Potential Price Targets For The Release

GBPUSD Daily

Chart – Created Using FXCM Marketscope 2.0
Retains Weekly Range Ahead of 3Q GDP; Maintains Upward Trend Since July
Relative Strength Index Threatening Bearish Momentum
Interim Resistance: 1.6300 Pivot (2012 highs)
Interim Support: 1.5900-10 (78.6% Fibonacci expansion)

Impact that the U.K. GDP report has had on GBP during the last quarter

Period

Data Released

Estimate

Actual

Pips Change
(1 Hour post event )

Pips Change
(End of Day post event)

2Q 2013

07/25/2013 8:30 GMT

0.6%

0.6%

-85

+19

2Q 2013 U.K. Gross Domestic Product

U.K. GDP increased another 0.6% in the second-quarter after climbing 0.3% during the first three-months of the year, and it seems as though a British economy is getting on a more sustainable path as it skirts a triple-dip recession. Despite the in-line print, the bearish reaction in the GBPUSD pushed the exchange rate below the 1.5300 handle, but the sterling regained its footing during the North American trade to end the day at 1.5387.

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

To be added to David’s e-mail distribution list, please follow this link

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Source: Daily fx