Catching a falling knife, or where is the GBP/USD headed?
Mid European morning found binary options players in the GBP/USD pair awaiting GDP data from the United Kingdom.
Britain's economy did not suffer a double-dip recession after all, but some revisions to data have clarified that its recession immediately after the financial crisis was deeper than previously reported.
Revised data showed that Britain's economic activity did not shrink in the first three months of 2012, however it didn’t grow either - output was flat, as reported following a major annual revision of Britain's economic numbers. That meant that the UK did not suffer more than one consecutive quarters of contraction which is perceived to be the definition of a recession.
This came as a relief for a suffering in opinion polls Government and in particular for finance minister George Osborne. The Kingdom’s economy shrank by 7.2 percent in recession immediately after the the financial crisis roiled markets, this is way worse than previously reported estimates of a 6.3 percent decline. UK Economy’s output is now 3.9 percent below its pre-recession peak, which is again substantially worse than previously reported.
The Pound Sterling reacted swiftly – a gap to 1.5306 has set in motion a relentless decline that whilst initially finding support in the 1.5260-70 area culminated in several runs of stops being triggered to end the trading day in Europe testing 1.5200. The pair has bounced since and is currently trading around 1.5250. One should be very cautious in trading this pair before it manages to consolidate recent losses. Our recommendation is to wait for some important levels to be tested before placing a trade.
As we look at the charts we are observing a declining channel developing from the daily tops on June 19th towards the daily high from this week’s Tuesday. We are yet to observe another test of the bottom of the channel so for now we would probably be buying dips towards 1.52 as of now. On the upside the first important level to watch is 1.53 (previous support before the gap lower post GDP data today).
FED members are on the wires today with the influential head of the New York FED William Dudley kicking off comments. He said that the Federal Reserve's asset purchases would be more aggressive than the timeline Chairman Ben Bernanke outlined last week if the U.S. economic growth and the labor market turn out to be performing weaker than expected.
Mr. Dudley openly pushed back against market concerns over the withdrawal of monetary stimulus, by stressing in a speech that newly adopted schedule for reducing the pace of bond buying depends on the evolution of the economic outlook, which remains uncertain. Following the comments by the New York FED Chairman, Dennis Lockhart was on the wires saying to reporters that the FED could do a faster taper if the economy improves. He also denied that there was a concentrated effort to correct market's reaction.