Pound turns bullish on positive economic data

After falling to a low of 1.3835 in the last week of February, the GBPUSD currency pair recovered to hit a high of 1.45136 in the second week of March. Altogether, so far, the GBPUSD pair has seen more than 1500 pips of volatility this month. Along with a rise in the implied volatility, the currency is expected to see a further uptrend in the coming weeks due to the following reasons.

Fundamentally, the measures taken to boost the economy are beginning to show an effect on the UK economy. The final estimate of the fourth-quarter GDP was 0.6%, which is a notch above the forecasted GDP growth of 0.5%. The final GDP growth for the fiscal 2015 was 2.3%, beating the analysts’ estimate of 2.2%. The GDP growth has put off fears of an economic slow-down in the UK.

The GDP growth was driven by the consumer demand. Furthermore, the negative impact of trade was lower than anticipated. But for the negative effect of a 2% decline in the business investment, the GDP growth would have been much higher. The market is not bothered much about the decline in the business investment because the country is a service oriented economy. Consumer expenditure matters the most for the economy than anything else.

The employment rate during the last quarter of 2015 was 74.1%, up from 73.3% recorded in the prior year similar period. It is the highest employment rate since 1971. The January data also revealed that the average earnings increased 2.1% and went past the analysts’ estimates of 2% growth.

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In the third week of March, the US Fed Chair Janet Yellen stated that only two of the four interest rate hikes planned for 2016 is possible, considering the global economic scenario. The dovish move of the FOMC (Federal Open Market Committee) weakened the US dollar significantly against all the major currencies including the Pound.

Finally, the market seems to have temporarily kept aside the ‘Brexit’ concern. However, the volatility is expected to rise considerably as the date for the referendum draws nearby. Thus, fundamentally, the Pound is expected to remain strong against the US dollar for the next few weeks.

Technically, the GBPUSD pair has a strong support at 1.4325 and 1.4189. The currency pair has crossed over the 50-day moving average comfortably. The main line of the MACD indicator is above the zero line and the signal line. Thus, a forex trader should look for an opportunity to take a long position near 1.4200 levels. The stop loss order for the long position would be 200 pips below the entry level. The target for the long position would be 1.4750.

A binary options trader should purchase a one touch call option contract. The target level for the contract should be near 1.45 levels. Any expiry date in the last week of April would be beneficial for the trade.

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