The UK economy showed solid growth in the last quarter, as higher exports and consumer spending helped to offset the post-Brexit vote uncertainty, official data revealed on Friday. According to the Office for National Statistics' second estimate, the British economy expanded 0.5% in the Q3, in line with analysts' expectations. Business investment jumped 0.9% on a quarterly basis in the three months to September, surpassing the 0.6% rise market forecast. Britain's economy has so far performed much better than expected in the wake of the country's vote to leave the EU.
However, analysts suggest that challenges lie ahead, as higher inflation caused by the steep fall in the value of the British Pound is likely to squeeze consumer spending and increase cost pressures on business. Household spending increased 0.7% in the Q3, slightly below the prior quarter's level but still strong enough to boost the economy. Net trade contributed 0.7% to economic growth in the last quarter, the largest positive reading since the beginning of 2014, driven by higher exports amid the weak Sterling. Compared with the same period one year ago, the economy grew 2.3% in the Q3, meeting projections. Services output advanced 0.8%, while manufacturing and construction output dropped 0.9% and 1.1%, respectively.
US GDP is the main driver today
GBP/USD to retake 1.25
In spite of bullish signs the Cable started off with a rather sharp decline of 63 pips, having also put the two-month up-trend to the test yesterday. Technical studies keep suggesting the GBP/USD pair is to edge higher, this time with no room for a decline, as trade opened just in front of the up-trend. Moreover, this support line is also reinforced by the monthly PP and the weekly S1, making demand much stronger. The closest resistance, however, is unlikely to limit the gains if those occur, but downside risks are still present, due to the Cable located within the borders of a rising wedge pattern, which usually end with downside breakouts.
Daily chart
Hourly chart
Traders mostly bullish
Market sentiment remains bullish, now at 62%, compared to 61% on Monday. The portion of sell orders inched up again, from 61 to 64%.
A similar situation is observed elsewhere. For example, 61% of positions open at OANDA are currently long. This is more than the share of shorts (39%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 68% of traders being long and 32% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.24, the average forecast for February 29 is 1.2421. Furthermore, the 1.24-1.26 and the 1.26-1.28 intervals are now the most popular ones, having 12% of the votes each. On the second place in terms of the votes are the 1.16-1.18 (11%) and the 1.20-1.22 (11%) intervals, followed also by the 1.14-1.16, the 1.18-1.20, the 1.28-1.30 and 1.30-1.32 intervals, all with only 9% of the votes. Moreover, 53% all survey participants believe the Cable is to fall above 1.24.