GBP/USD Retreats from 1.6164 After Poor UK GDP

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UK's preliminary estimate for Q1 GDP came out to be -0.2% disappointing after forecast for 0.1%. The previous quarters GDP was revised down to -0.3% from -0.2%. This can be interpreted as the second time the UK economy has entered a recession since the financial crisis. In the currency markets, this should pressure the pound.

GBP/USD

The daily GBP/USD chart shows the pair that has been attacking the 1.6164 resistance, which provided resistance at in Oct/Nov 2011. So far, the daily chart candle can be interpreted as an engulfing candle to the downside. It should be noted that during November 2011, the market fell from the 1.6164 high to 1.5880 area during a period of consolidation. Therefore, even if the market does not reverse completely from 1.6164, we can anticipate a consolidation down to 1.59.

The 1H chart shows the strong reaction to the poor GDP after the GBP/USD initially cracked the 1.6164 resistance and reached to 1.6174. The 1H candle took away 2 days of gains.The RSI also dipped below 40 and tagged 30, showing the initial stage of developing bearish momentum in the 1H time-frame.

The market will now need to break below the 1.6080 pivot to show that this reaction has follow through and can cause some correction to the 2012 bull run so far. If the market fails to break 1.6080, and rallies above 1.6140 (61.8% retracement of the UK GDP reaction), we can say that the initial reaction is weak, and the upside risk that the market will break above 1.6164 resistance strengthens. Another sign of upside risk is the 1H RSI reading going back above 60.

Otherwise, we should see the market defend fade against a pullback toward 1.6080 in the US session, with a break below first opening up a short-term support pivot near 1.6012.

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Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes and IBTrade will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.