GBP/USD: UK CURRENT ACCOUNT

Published : 11 years ago, on 31/03/2014

GBP/USD drew strong support from better than expected retail sales data released earlier this week and the upcoming printing of the current account balance might extend the rally if it comes in strong.

From a previous deficit of 20.7 billion GBP, the report might show a smaller shortfall of 13.5 billion GBP. This could be reflective of stronger trade activity or better fiscal management by the UK government. Do take note though that public sector borrowing for the same month was worse than expected, as it indicated that the government spent more than what it earned for the period.

Nevertheless, a smaller than expected shortfall could push the GBP/USD higher in today’s trading session and possibly until the end of the week. A look at the previous reaction to the report shows that GBP/USD reacts positively to better than expected data and sells off on weak figures.

A selloff could lead to a test of the pair’s former lows around the rising trend line on the 1-hour time frame and at the 1.6500 major psychological support. On the other hand, good data could push the pair closer to the recent highs around the 1.6800 major psychological resistance.

Bear in mind that the BOE is one of the more hawkish central banks around and that indications of economic improvements in the UK would convince traders that the central bank is likely to consider tightening monetary policy soon.

However, the pair is still finding resistance at a short-term Fibonacci retracement level just around the 1.6650 minor psychological level. A strong break above this resistance could be enough confirmation that the rally has legs.

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