Britain’s economy will go through the third and final revision on its hugely disappointing fourth quarter results – largely due to the negative impact of heavy snowfall in December – where the economy contracted by 0.6% according to the latest assessment in February.
The UK GDP for Q4 has been on a miserable trend of downward revisions, first releasing a 0.5% drop in January, only to get a new hit after a 0.1% downward revision in February, weighed by industrial and services output. The focus for this final release is on the detail. Economists expect an unrevised headline number today.
GBP/USD is the best pair to trade. Pound bulls have come to the realization how hard it will be to unravel the range-bound conditions after an ephemeral drive through multi-year highs at 1.6400 gave way to a massive wave of sell orders, taking the pair nosediving to levels below 1.6000. This area is now psychologically crucial, having held all year long since broken to the upside last January.
There is three scenarios may be altered should month-end flows take place. It is likely that between today and tomorrow asset managers will be re-assesing their positions to balance their hedges after a high-speed month for global markets, mainly result of the Japanese earthquake and Tsunami.
Downward revision: A reading that exceeds the latest pre-registered 0.6% contraction would only exacerbate the bearish sentiment on the UK economy, likely to be translated in further falls in the domestic currency. The cross could encounter its first hurdle at 1.5970, loss of this level is needed to resume the bearish momentum towards 1.5900 (Dec 2010 highs) and ahead of the key 1.5830/50 support (Jan 28 lows).
Upward revision: An improved revision may help to ease the excruciating pressure the Pound has been exposed to in recent days. This outcome may encourage s/t counter-trend and position traders to buy around key psychological 1.6000 area or slightly below. Also, the need to run an upside correction will play its part too on helping push the price upwards. On the upside, Pond could aim for 1.6030 ahead of 1.6060 resistance. Above the latter, 1.6100 could be brought into play.
In line with expectations: An unrevised reading in line with estimates may not impact the cross so much as the worst has already been priced in. On this basis, it is to expect that the downside could be limited by 1.5936, yesterday’s’ low. On the upside, price is likely to spend the European session confined between 1.6030/60.