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Summary: The GBPUSD is trading around the 1.2700 positive region during the European session. UK economic data reveals a 0.2% growth in the second quarter, supporting the British pound.

Fundamentals

Data released by the UK's Office for National Statistics on Friday showed a 0.2% QoQ growth in the UK economy for the second quarter; while modest, it exceeded widespread expectations of zero growth or a repeat of the 0.1% growth from Q1. This provides a glimmer of hope for the UK economy which has been struggling to escape growth stagnation.

Another positive note is the 0.5% MoM GDP growth in June, surpassing the anticipated 0.2% increase and rebounding from May's -0.1%. This marks the highest monthly growth rate since October 2022.

As part of the fight against inflation, the Bank of England has gone through a challenging period despite raising interest rates to 5.25%, the highest level since February 2008. Inflation remains elevated at 7.9%, the highest among G7 nations, far above the Bank of England's target of 2.00%. The slight improvement in economic growth is welcomed by the Bank, as concerns have arisen about the potential impact of rising rates and economic weakness leading to a recession.

The market's response to the GDP data has been muted. GBPUSD rose about 40 basis points after the GDP announcement but gave up most of those gains. Overall, the UK GDP is currently projected to be only 0.2% below pre-pandemic levels (Q4 2019). This development is better than expected, but it still doesn't alleviate concerns about the UK economy and the prospects of stagflation risks.

Investors are likely weighing the inflation risks that accompany robust growth. This situation is a double-edged sword for the asset. Increased inflation pressure is expected to rekindle market bets on further rate hikes by the Bank of England, which could benefit the pound in the short term.

However, the implementation of these rate hike measures also carries the risk of negative impacts on future economic activity, ultimately limiting the pound's upside. Investors need to patiently await the latest data on market rate expectations.

Technical Analysis

The daily chart of GBPUSD reflects Thursday's overall price movement, while Friday's trading exhibits the resilience of the British pound. Bulls rebounded in a constructive manner from trend support just below the 1.2700 level, forming a bullish "morning star" signal.

Subsequently, during the European session, a strong rebound took the price significantly above the psychological resistance level of 1.2700, temporarily breaking free from a tight spot. However, the pound is still struggling as its trading price remains below the 20-day and 50-day Exponential Moving Averages (EMA). In Thursday's trading, the asset attempted to climb above the 20-day EMA but faced aggressive selling, rendering it more fragile.

As expected, the U.S. dollar surged after the just-released U.S. July PPI annual rate data, pressing down on the pound and causing it to drop below 1.2700, erasing most of the intraday gains.

Nevertheless, the overall upward momentum is still maintained. The current focus of the battle between bulls and bears remains above the 20-day EMA. Despite bearish pressure, support hasn't shown signs of lagging behind. Furthermore, the support from the 89-day and 100-day SMAs still firmly uplifts the asset's price. As long as the closing price remains above these two moving averages, a downtrend is unlikely to form. In terms of trading, buying the dips should be the primary strategy.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.2690

Target Price: 1.2980

Stop Loss: 1.2550

Valid Until: 2023-08-25 23:55:00

Support: 1.2650, 1.2620, 1.2591

Resistance: 1.2756, 1.2790, 1.2820