The Office for National Statistics showed that Britain’s current account deficit was £27.0 billion in the third quarter. The deficit matched a record high of 6.0% of GDP at current market prices. The economy is relying heavily on British households despite a 0.1% decline in disposable income. Income from foreign investments weakened and payments to foreign investments rose.
Prior to the current account release, GBP/USD attempted to secure the 1.5600 handle, but failed after making a high of 1.5607. The knee jerk reaction to the increasing deficit was bearish for sterling as price immediately dropped 34 pips to 1.5550 in just three minutes. Price extended its declines shortly after the 830 AM US GDP surprise beat of 5.0% for Q3. A disappointing Durable goods report was also released at the same time and that may have prevented the dollar from rallying even further.
Price action on the GBP/USD daily chart shows that price is steadily trading below the 200-, 100-, and 50-day SMA. After price failed to regain the 61.8% Fibonacci retracement level, downward momentum appears poised to make a run towards the 78.6% Fibonacci level at 1.5321
If we don’t see fresh lows, major resistance will come from the 50-weekly Simple Moving Average at 1.5808. If that level is taken out, further bullishness should be faded with stops just above the 1.60 handle.
The trade: Sell GBP/USD at 1.5500 with a stop loss at 1.5585 and a take profit at 1.5330. The Risk/Reward Ratio is almost 1:2.
Edward J. Moya