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UK GDP Disappoints But GBP Pairs Rise Further

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Earlier this morning, there were some economic figures from the UK, which came in with another disappointment, showing a clear sign of slowing down and increasing the risk of Brexit fears.

Such figures continue to prove that the Bank of England is still far away from changing its easy policy anytime soon. In fact, the risk is rising toward further easing, especially if the slowing down continues.

Today’s Fundamentals

Beginning with the GfK Consumer Confidence Index, it actually posted its 14th month of consecutive declines at -7 last month compared to -6, which is the weakest reading since more than five months.

Secondly, the House Price Index showed a shocking reading, showing a decline of -0.4%, compared to a decline of -0.3% last month, despite the fact that the estimates were to rise by 0.1%.

This is the second monthly decline in a row, one we have not seen since 2012 and the biggest MoM decline since July of 2012, showing concerning signs of a sharp slowing down in the housing markets.

Finally, the GDP also showed a faster slowing down than expected, growing by 0.3% in the first three months of this year, despite the fact that the estimates were pointing to a growth rate of 0.4%.

However, the good thing is that Q4 of last year’s GDP has been revised up to 0.7% instead of 0.6%. Yet, today’s GDP is the weakest growth level since Q1 of 2015. This is despite all of the latest measures conducted by the Bank of England, right after the Brexit referendum results.

Why GBP Is Holding Gains

Despite today’s data which shows clear signs of slowing down, markets are concentrating on inflation figures, which remain on the rise, bringing consumer income sharply lower.

As long as inflation keeps on rising, GBP pairs might keep on rising. However, such rally is unlikely to be a trend anytime soon, as the Brexit negotiations and the upcoming election is likely to have its negative effect on GBP.

GBPUSD May Test 1.30 Soon

Yesterday, GBPUSD managed to break above 1.2866 solid resistance level, which used to be a solid support area back in June of last year, with a clear daily close above that resistance.

Earlier this morning, the breakout continued all the way to 1.2940’s until this report is released. Such breakout opens the way for further gains ahead. The first immediate resistance stands at 1.30 psychological resistance, which should be watched closely, as a break above that level would clear the way for another bull run toward 1.3080’s.

However, traders need to keep in mind that technical indicators are heavily overbought, which means that the current rally has only a few more days of gains before the downside retracement occurs.

Falling Yen May Push GBPJPY to 147.0

The Japanese Yen had a rough week, falling by more than 2% since the beginning of Monday’s trading, pushing GBPJPY higher above its entire moving averages, including the 50, 100 and 200 DAY MA for the first time since January.

Such breakout would increase the possibility for further gains ahead, especially if GBP continued to hold more gains ahead of June’s general election and a continuation of falling Yen.

If so, GBPJPY has a chance for another spike higher, probably toward the former resistance area which stands around 147.40’s, where sellers are likely to appear.

Technical indicators are heavily overbought on most timeframes, which means that the current rally also has few more days of gains before the downside retracement begins.

 

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