In November that proved quite the opposite as the UK economy displayed truly phenomenal resilience. The Gross Domestic Product (GDP) increased by 0.3%, an impressive rebound from the 0.1% decrease in the month of October. This flood of generally positive economic data has had a meaningful impact on the currency market, resulting in volatility with the GBP/USD exchange rate. Currently GBP/USD is trading around 1.3436, up 0.03% on the day according to the latest reports.
The short-term resistance for GBP/USD is now at the nine-day Exponential Moving Average (EMA) of 1.3444. A daily close above this level can set the stage for a potential breakout. That might bring us close to the three-month high of 1.3562. If the bullish trend in the currency pair fails to continue, it could retrace back down towards key support. Resistance on the upside was found at the 50-day EMA, with this being the current level situated at 1.3387.
Economic Indicators and Market Reactions
The UK’s GDP as a whole has been booming in recent years. Projections for industrial production back this uptick, with a 0.1% mom increase in November projected, following an eye-catching 1.1% mom October jump. It’s this kind of numbers that are really important because they tell us what’s happening inside the manufacturing space specifically, and just in the economic activity space in general.
The market is keenly awaiting UK GDP and industrial production data. Should these figures come in as expected, they might be enough to support GBP/USD and prevent further declines. Another nasty surprise from the industrial production data could induce profit-taking bearish pressure on the currency pair. That’s particularly the case if the data does not meet the projected growth.
Sterling bulls may want to take note, as the GBP/USD momentum indicator currently reflects neutral momentum. The 14-day Relative Strength Index (RSI) is at 50, indicating neutral conditions after pulling back from overbought territory. That’s why traders are continuing to play it safe. They’re watching each upcoming economic release and how it can affect the currency’s performance.
Currency Market Dynamics
Currently, GBP/USD is hovering just above 1.3420. The volatility as seen on the EUR/CHF illustrates the continued volatility both before and after the release of crucial economic data. Bullish traders will view the immediate resistance at 1.3444 as a target. On the other hand, the support line at 1.3387 is key for keeping bearish mood intact.
These are the daily closes that analysts are watching very closely. If GBP/USD can’t recapture that medium-term average, it may set the stage for a retest of the eight-month low at 1.3010. Only truly disappointing economic data might steer the needle in such a direction. Wider market moves could rattle investor faith in the pound sterling.
As always, market participants will want to remain on guard as they parse the potential implications of March’s first major economic reports due to hit the wire. They’ll be especially tuned in to how these indicators might affect their own future trading decisions on GBP/USD.
Future Outlook
Looking forward, analysts have forecasted that UK economic indicators will be crucial in shaping GBP/USD directions. This expected increase in industrial production could help support sterling confidence, provided the figure comes in at or above market expectations.
If these indicators come in weak, it would spark more downside volatile action in the currency pair. Going forward, it will be the ongoing tug-of-war between positive economic growth numbers with negative investor sentiment that should dictate the future direction of GBP/USD.