Tomorrow, the UK is going to announce their monthly adjusted GDP for July. Pound pairs are volatile today while uncertainty and doubt in the central bank's policies going forward. The direction of GBP will likely be shaped by tomorrow's numbers, but here are some factors to consider.
If the UK announces a fall in GDP, which is expected, the BoE might have to start loosening up on the pound. Deterring focus from the strength of their currency would result in a stronger economy. The downside to that is an acceleration of inflation.
The expectation is a considerable drop from June, so we could see a beat in forecasts while still looking at a lower growth in output. Either way, it looks like the UK is in for some bad news.
Strong Stock Market
Another thing to consider is that the equities market in the US getting stronger each day on good inflation and jobs numbers within the past week. There is a strong correlation between the British pound and the S&P 500 index. If equites continue to rise, GBP could ride on the coattails.
It's now much tougher to tell where stocks are headed as well. Investors do see a light at the end of the tunnel, however, rates will only continue to rise. The question of whether or not the US is still experiencing a bear market rally or entered a new bull market is still up in the air.
Pound Pairs to Trade
GU rises with US equities as investors wait for GDP numbers to come out tomorrow. The pair is coming up near resistance around 1.22961. If GDP comes in lower than last month, investors might think that BoE will have to reduce hawkishness to focus on economic growth. This would likely take the pound lower, although a strong US stock market is carrying GU with it.
A big break in support on pound-aussie looks extremely bearish for the pair. If this candle closes below the 1.71748 level, we could expect further downside for some time. A new level of resistance looks to be in the making on the 1D timeframe which would be a tough level to break back above.
Pound-CAD looks weaker too. Price fell lower on the 4H timeframe as it nears the falling trend line for support. Lower highs and a fail to test resistance suggest weakness in the pair. Price may come down to test 1.55075 should we see another sell off.
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