UK GDP preview: What to expect of GBP/USD?

The first estimate of the United Kingdom GDP is expected to have slowed its pace of growth to 0.5% in the fourth quarter, from the third, when it rose 0.6%. The report may surprise to the upside and arrive at 0.6% on expectations that consumer spending would continue to support growth. 

Should the data come in line or better-than with expectations, we could see a knee-jerk upward spike in the cable to fresh six-week highs and could may as well test 1.27 handle. While a weaker GDP report could trigger a fresh sell-off, sending the cable back towards 5-DMA support located at 1.2544.

Analysts at Danske Bank noted, “Q4 economic indicators such as the PMIs were solid in Q4 and the NIESR GDP estimate suggests GDP grew by 0.5% q/q, which is also our expectation (2.1% y/y). That said, a downward correction of the large increase in inventories in Q3 is a downside risk to our forecast.”

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 10 and 40 pips in deviations up to 2.5 to -2.5, although in some cases, if notable enough, a deviation can fuel movements of up to 70 pips.

GBP/USD technical levels to watch on data

Haresh Menghani, Analyst at FXStreet notes, “The pair on Wednesday cleared an important confluence resistance near 1.2535-40 region and hence, a follow through momentum suggests continuation of the pair’s near-term upward trajectory towards 1.2700-10 resistance area, representing 50% Fibonacci retracement level of 1.3445-1.1980 downslide. The momentum could further get extended towards December monthly highs resistance near 1.2770-75 area.”

“On the flip side, 1.2625 level now becomes immediate support, which is followed by 1.2600 round figure mark. Weakness back below 1.2600 handle could drag the pair back towards the confluence resistance break-area, now turned support, near 1.2540-35 region.”