Earlier in London, sterling shrugged off weakness to the dollar after a report showed that the UK GDP grew at the weakest levels since the fourth quarter in 2012. The Office for National Statistics reported that UK GDP preliminary estimate change for the first quarter (January to March) 2015 grew at 0.3%, much lower than the forecast of 0.5%. GBP/USD fell from 1.5219 to 1.5173 immediately following the release, but then eventually rallied towards 1.5288 region.
The GBP/USD daily chart shows that the recent rebound that began from the 1.4564 low appears poised to have two consecutive daily closes above the 100-day SMA. A bearish Gartley pattern is also tentatively being invalidated. If we see price close above point D, which is targeted by both the 200.0% Fibonacci expansion level of the B to C leg and the 70.7% Fibonacci retracement of the X to A decline, further bullish momentum could support a run towards the 1.5500 area.
In the short-term, gains may be limited as we are only 9 days away from the May 7th election. Continued poor economic data points may hurt the government of David Cameron and could weigh heavily on sterling. Initial support will come from the 1.5177 level and major support will come from the 50-day SMA which is currently trading at 1.5020.
The trade: Buy GBP/USD 1.5250, with a stop loss at 1.5150 and take profit at 1.5450. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading