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

The UK GDP growth rate is expected to have accelerated to 0.5% in Q2 2016, up from 0.4% booked in the first quarter of 2016, showing resilience to the Brexit shock.

The renewed optimism on the UK’s growth prospects could be largely on the back of improved industrial production in April and May combined, and a significantly reduced trade deficit in those months overall.

Should the data come in line or better-than with expectations, we could see a brief upward spike in the cable towards 1.32 handle, which is expected to be short-lived, given increased cautious tone prevalent in the markets before the Fed decision. While a weaker GDP report could trigger a fresh selling in GBP/USD, sending the rate back towards 1.3050 – key psychological levels.

Banks’ views

RBS: "Our forecast is for GDP growth of 0.6% q/q, 2.2 % y/y, in Q2 2016. The output data already published show industrial production on course for growth of 1.5% q/q in Q2 (our forecast incorporates a 1.5% m/m fall in June).”

MUFG:”The release this week of the UK GDP report for Q2 is expected to reveal further evidence that the economy was more resilient than expected heading into the referendum. Other survey evidence since the referendum has also sent more mixed signals over the likely performance of the UK economy."

GBP/USD: Technical Levels

Haresh Menghani, Analyst at FXStreet notes, “On 4-hourly chart, the pair remains capped 1.3160-70 confluence region, comprising of 50-SMA and a short-term descending trend-line. A sustained movement above this immediate resistance should boost the pair immediately towards 38.2% Fibonacci retracement level resistance near 1.3220, above which the pair seems all set to continue with its recovery trend towards its next major resistance near 1.3320 area marked by 23.6% Fibonacci retracement level.”

“On the flip side, a convincing break below 61.8% Fibonacci retracement level support near 1.3050 region is likely to turn the pair vulnerable to break below 1.3000 psychological mark and head towards testing its next major support near 1.2860-50 zone with 1.2900 round figure mark acting as intermediate support.”