GBP USD Hammered by Unexpected Drop in GDP

The GBP USD is getting hammered this morning, following an unexpected drop in U.K. 3rd Quarter Gross Domestic Product.

The GBP USD is getting hammered this morning, following an unexpected drop in U.K. 3rd Quarter Gross Domestic Product. Today’s news indicated the U.K. recession worsened as it extended into its 6th straight quarter. Traders had estimated a rise in GCP by 0.1% while actual results showed a drop of 0.4%.

This report indicates that the Bank of England will keep interest rates at historically low levels for an extended period of time. The poor showing will likely mean that the BoE will continue to fund its asset-purchase program.

Speculators had been driving up the British Pound the past 10 days in anticipation of the Bank of England ending its asset-buyback program. Today’s selling pressure is likely to drive this market down to 1.6198 over the near term.

The EUR USD is holding steady above the psychological $1.50 area. Trading has been light and the range tight despite another good German Business Confidence Report. Traders continue to keep the volatility down out of fear of stimulating the ire of European Central Bank members who want to prevent a rapid rise in the currency. Higher prices could be triggered today if the U.S. corporations continue to report stellar earnings.

Technically there are too many short Dollars out there which has put this currency in overbought territory. The further the EUR USD rises above $1.50, the more likely the ECB will turn up talk of an overextended currency and its negative effects on the Euro Zone’s ability to mount a strong recovery out of the recession.

Look for the USD CAD to continue its rally. Traders continue to sell Canadian Dollars after the Bank of Canada said earlier in the week that the rise in the currency had offset recent positive economic gains. Their stern comments amounted to a verbal intervention which has scared traders into covering their short USD CAD positions.

The charts indicate that this rally is expected to continue to 1.0598 to 1.0611 while the fundamentals suggest gains could be limited because of stronger equities and higher crude oil prices.

Selling pressure could continue on the AUD USD and NZD USD while traders try to figure out if China will begin to cut back on its stimulus spending. Traders in these two currencies fear that a slow down in stimulus spending will slow down the pace of their country’s economic recovery. Renewed demand for higher yielding assets could limit losses however while a break in the U.S. equity markets could accelerate the move to the downside.