Breakdown of the latest developments on the global exchanges
May 12, 2021, 9:00 AM GMT

GBPUSD Consolidates Following Better-Than-Expected British GDP Data

GBPUSD Consolidates Following Better-Than-Expected British GDP Data

The GBPUSD remained relatively unfazed by the preliminary GDP growth rate numbers that were published by the Office for National Statistics in the UK. Even though the reported performance was slightly better than the projections of the initial forecasts, the British economy still shrunk by 1.5 per cent in Q1.

The market was bracing for a marginally bigger slump of 1.6 per cent in the three months leading to March, despite improving economic conditions that were recorded over the same period.

The GBPUSD pair may be due for a bearish correction following the release of the Q1 GDP growth rate numbers in the UK

The GBPUSD continues to consolidate above the psychologically significant resistance-turned-support level at 1.40000, as bullish commitment in the market peaks. This is confirmed by the MACD indicator.

The breakout above this major threshold occurred after the price action penetrated above the Ascending Wedge pattern, as can be seen on the 4H chart above. At present, the pair appears to be consolidating within the boundaries of a narrow range (Flag).

Given that the pound was not strengthened by the better-than-expected GDP data for Q1, the GBPUSD may finally be due for a minor bearish correction. That is, if the price action does not break out above the Flag and continue advancing further north.

The two Fibonacci retracement levels - the 23.6 per cent at 1.40470 and the 38.2% at 1.39740 - seem like two potential targets for such a correction. Notice that the two are positioned around the psychological support at 1.40000, which increases the likelihood of adverse fluctuations between the two Fibonacci retracements.

Meanwhile, the 20-day MA (in red) represents the first obstacle for bears, as the GBPUSD would have to break it before it can head any lower.

Restrictions continue to weigh down on growth

Even though headline recovery continues to be going at a pace that exceeds the initial forecasts, something that became even more apparent by the more hawkish outlook of the BOE, reintroduced restrictions in the U.K. continue to stymie growth.

The British economy contracted in Q1 of 2021 because of reintroduced coronavirus restrictions

The economic contraction in Q1 was mostly owing to the reintroduction of more stringent restrictions in Britain, as coronavirus cases shot up in February and March. This impeded the process of reopening the economy, which consequently reduced the underlying activity.