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Upbeat Q2 GDP data turns Pound temporarily bullish

British MoneyOn 4th July, we had recommended a short position at 1.3300 in the GBPUSD pair. We had given a target of 1.2950. Clearly, we had mentioned that the downtrend would be very quick and traders will have little time to react.

As forecasted, within few days, the currency hit the target before climbing back again to the level of 1.3300. Now, after consolidating between 1.3020 and 1.3350 for nearly three weeks, the currency pair is signaling another uptrend. For the reasons mentioned below, we recommend a long position in the currency pair.

The latest survey report about the manufacturing prospects in the UK was released last week by the Confederation of British Industry (CBI).

The survey of 506 manufacturers indicated a recovery in the past three months to July. The leading indicator shows a gloomy picture for the next three months. However, the reading of -4 was better than the analysts’ expectation of -6.

RT

According to the office for National Statistics, the UK’s economy expanded 0.6% in the quarter ended June, compared to the prior quarter. The preliminary estimate was higher than the analysts’ expectation of 0.5%.

On the other hand, data from the US indicates that the economy is still struggling to recover. The core durable orders in June decreased 0.5% sequentially. The analysts had anticipated a growth of 0.3%. Similarly, the pending home sales rose only by 0.2% in June, against the market’s expectation of 1.9%. Finally, the jobless claims increased 14,000 to 266,000 in the week ended July 23rd . The estimate of analysts stood at 261,000. Thus, considering the mixed economic data in the US, we can argue that the Fed will not raise the interest rates anytime soon. On the other hand, the UK economy continues to fare better than expected. Thus, we can fundamentally expect the Pound to strengthen against the Greenback in the days to come.

The currency pair is moving within the ascending channel. Once again the decline from 1.3250 was halted by the lower band of the ascending channel. The stochastic indicator is also rising firmly as shown in the sub-chart.

GBP/USD August 1st 2016

GBP/USD August 1st 2016

Thus, a long position in the currency pair at 1.3100 levels is the most suited trade under these circumstances. The stop loss for the trade can be placed below 1.3040. Profit book for the long position can be made at 1.3330. The recommended trade carries a risk to reward ratio of 1:2.

As far as a binary trader is concerned, a one touch call option contract would be a suitable choice to trade with. The target level for the trade should be 1.3330 or lower.

An expiry period of about three weeks is sufficient for the price to violate the target level and return a yield of at least 85% from the trade.


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