While most of the market is looking ahead to the US FOMC meeting, sterling traders await the UK GDP number which will be released ahead of the Fed announcement. Today’s UK CBI manufacturing number was dismal and indicates to market participants that the British economy may have been weaker than the market expects in the 1st quarter of this year.
After languishing during Monday’s session above 0.8800, the EURGBP broke out after the release of the poor UK CBI numbers as sterling took a hit on the news across the board. This breakout rally made highs at 0.8903 before falling back to the 38.2% Fibonacci retracement level late in the NY session.
If UK GDP is weak, fully expect price to break out and test the 12-month highs at 0.8940. A break above that level sees price complete the quarter to 0.9000, a call I made way back in January. However, if price surprises to the upside, price will retrace this rally back to 0.8850. A break of that level to the downside sees price go to 0.8800.
Remember, trade the market reaction (price action) not the news headline.
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