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The British pound is drifting on Wednesday. In the European session, GBP/USD is trading at 1.2784, down 0.06%.

UK GDP expands 0.2% in January

It wasn’t a spectacular rebound but the UK economy showed some slight improvement, with GDP rising 0.2% m/m in January. This modest gain was in line with market expectations and followed a 0.1% decline in December. The main drivers behind the gain were retail trade and construction.

Over the past three months, GDP painted a gloomier picture. On an annualized basis, GDP declined by 0.3% decline, while GDP in the three months to January was down 0.1%.

The UK economy experienced a shallow recession in the second half of 2023, as the third and fourth quarters showed negative growth. The small gain in January shows that economy remains stagnant and could still be in a recession, but could point to the economy slowly finding its feet.

The Bank of England has projected that GDP for the first quarter will edge higher by 0.1% and the markets have priced in rate cut later in the year – August is the most likely date for a first rate cut but June is also a possibility. Inflation has dropped to 4% and consumers are feeling less of a squeeze on their wallets. Still, inflation remains double the 2% target and the battle against inflation is far from over.

Like other major central banks, the BoE is wary about lowering rates until it is convinced that inflation will not jump higher after it cuts rates. The BoE meets on March 21^st and is widely expected to hold rates at 5.25% for a fifth straight time.

GBP/USD Technical

• GBP/USD tested support earlier at 1.2788. Below, there is support at 1.2751
• There is resistance at 1.2829 and 1.2866

Daily Pivots: (S1) 1.0904; (P) 1.0924; (R1) 1.0946; More...

Outlook in EUR/USD is unchanged and intraday bias stays neutral at this point. Further rise is in favor as long as 55 4H EMA (now at 1.0894) holds. Above 1.0980 will resume the rally from 1.0694 to retest 1.1138 high. However, sustained break of the EMA will turn bias to the downside for 1.0797 support instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Rise from 1.0447 is seen as the second leg. While further rally could cannot be ruled out, upside should be limited by 1.1274 to bring the third leg of the pattern. Meanwhile, sustained break of 1.0694 support will argue that the third leg has already started for 1.0447 and possibly below.

Daily Pivots: (S1) 1.2751; (P) 1.2788; (R1) 1.2829; More...

Outlook in GBP/USD remains unchanged and intraday bias stays neutral. Further rally will remain in favor as long as 55 4H EMA (now at 1.2755) holds. On the upside, above 1.2892 will resume larger rise from 1.2063 and target 61.8% projection of 1.2036 to 1.2826 from 1.2517 at 1.3005. However, sustained break of 55 4H EMA will bring deeper fall back towards 55 D EMA (now at 1.2662), and possibly further to 1.2517 structural support.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg, which is still in progress. But upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2517 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Daily Pivots: (S1) 0.8748; (P) 0.8772; (R1) 0.8796; More....

Intraday bias in USD/CHF remains neutral at this point. On the downside, sustained break of 0.8741 will argue that the whole rebound from 0.8332 might have completed, and bring deeper fall to 0.8550 support. Nevertheless, strong bounce from current level will retain near term bullishness. Further break of 0.8891 will resume the rise from 0.8332.

In the bigger picture, price actions from 0.8332 medium term bottom as seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8555 support holds. But upside should be limited by 0.9243 resistance, at least on first attempt.

Daily Pivots: (S1) 146.85; (P) 147.44; (R1) 148.27; More...

USD/JPY is staying in range between 146.47 and 148.29 and intraday bias remains neutral. On the downside, sustained break of 38.2% retracement of 140.25 to 150.87 at 146.81 will argue that fall from 150.87 is reversing the whole rally from 140.25. In this case, deeper decline would be seen to 61.8% retracement at 144.30 and below. Nevertheless, strong support from 146.81, followed by break of 148.29 minor resistance resistance, will argue that fall from 150.87 is merely a correction, which has completed already. Retest of 150.87 should be seen next.

In the bigger picture, no change in the view that price action from 151.89 (2023 high) are correction to up trend from 127.20 (2023 low). The question is whether this correction has completed at 140.25, or extending with fall from 150.87 as the third leg. Sustained break of above mentioned 146.81 fibonacci level will favor the latter case. But even so, downside should be contained by 50% retracement of 127.20 to 151.89 at 139.54.

Yen declined notably during the European session and stays weak as markets enter into US session. The selloff comes in the wake of rebound in European and US benchmark yields. Despite positive news from Japan, where large corporations have committed to significant wage increases for the first time in decades, the Yen struggled to find support. BoJ Governor Kazuo Ueda's remarks to the parliament underscored the importance of this year's wage negotiations, stating, "we hope to reach an appropriate decision (at next week's meeting) looking comprehensively at these results," along with other economic data.

Overall for the day, Yen is the weakest current, with Swiss Franc and the Dollar also underperforming. On the flip side, Euro led the strength chart, followed by Australian Dollar and New Zealand Dollar. Pound and Canadian Dollar are mixed in the middle. In particular, Sterling showed indifference to GDP data that aligned with expectations and hinted at the UK's exit from last year's recession.

Technically, Copper surges sharply higher today, and the break of 3.9346 resistance confirms resumption of whole rebound from 3.5021. Further rise is now in favor as long as 3.8422 support holds, for 100% projection of 3.5021 to 3.9346 from 3.6324 at 4.0649. Decisive break there with strong momentum will raise the chance that it's resuming the rise from 3.1314 too, and target 4.3556 resistance next. Meanwhile, rejection by 4.0649 will keep the rebound corrective, and suggest that consolidation from 4.3556 is still on-going. Also, firm break of 4.0649 in Copper could give Aussie a lift.

In Europe, at the time of writing, FTSE is up 0.10%. DAX is up 0.02%. CAC is up 0.55%. UK 10-year yield is up 0.0397 at 4.086. Germany 10-year yield is up 0.0107 at 2.343. Earlier in Asia,Nikkei fell -0.26%. Hong Kong HSI fell -0.07%. China Shanghai SSE fell -0.40%. Singapore Strait Times rose 0.61%. Japan 10-year JGB yield fell -0.0074 to 0.761.

Eurozone industrial production falls -3.2% mom in Jan, EU down -2.1% mom

Eurozone industrial production fell -3.2% mom in January, much worse than expectation of -1.0% mom. Production increased by 2.6% for intermediate goods, increased by 0.5% for energy, decreased by -14.5% for capital goods, decreased by -1.2% for durable consumer goods, decreased by -0.3% for non-durable consumer goods.

EU industrial production fell -2.1% mom. Among Member States for which data are available, the largest monthly decreases were recorded in Ireland (-29.0%), Malta (-9.4%) and Estonia (-6.6%). The highest increases were observed in Poland (+13.3%), Slovenia (+10.6%) and Lithuania (+7.2%).

ECB's Kazaks: Inflation dragon nearly defeated, rate cuts on horizon

ECB Governing Council member Martins Kazaks likened the fight against inflation to battling a dragon, stating in a blog post, "The dragon of inflation is pinned to the ground, a little more and it will be defeated." This vivid metaphor reflects a growing confidence within ECB that the persistent inflationary pressures which have challenged Eurozone economy are finally coming under control.

Kazaks further suggested that "if the economy roughly follows" the bank's forecasts, "then the decision to start reducing interest rates could be made within the next few meetings."

Kazaks also acknowledged the delicate balance the ECB has had to maintain: the risk of premature rate cuts that could reignite inflation versus the risk of delaying rate reductions too long. However, he noted that these risks are now beginning to "level out," there is "no need to delay the rate reduction too much"

Complementing Kazaks's insights, ECB Governing Council member Francois Villeroy de Galhau told France Info radio, "We will probably cut rates in spring, and spring in Europe is from April to June 21."

"It's perhaps more probable in June — we are very pragmatic and will see depending on the data," Villeroy added.

UK GDP grows 0.2% mom in Jan, matches expectations

UK GDP expanded by 0.2% mom in January, matched expectations. Services was up 0.2% mom, and was the largest contributor to growth. Production fell -0.2% mom while construction grew 1.1% mom.

In the three months to January, GDP has fallen by -0.1% 3mo3m. Services was flat. Production fell -0.2% 3mo3m. Construction fell -0.9% 3mo3m.

NIESR forecasts 0.3% UK GDP growth in Q1

NIESR forecast UK GDP to grow by 0.3% in Q1, aligns with a pattern of "low, but stable economic growth," suggesting a potential "turning point" for the nation after slipping into a technical recession in the latter half of 2023.

The forecast comes with a critical analysis of UK's economic stagnation, emphasizing the necessity for "structural changes" to break free from the so-called low-growth trap. The institute's recommendation underscores the importance of bolstering public investment, particularly in pivotal areas such as infrastructure, education, and health.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 146.85; (P) 147.44; (R1) 148.27; More...

USD/JPY is staying in range between 146.47 and 148.29 and intraday bias remains neutral. On the downside, sustained break of 38.2% retracement of 140.25 to 150.87 at 146.81 will argue that fall from 150.87 is reversing the whole rally from 140.25. In this case, deeper decline would be seen to 61.8% retracement at 144.30 and below. Nevertheless, strong support from 146.81, followed by break of 148.29 minor resistance resistance, will argue that fall from 150.87 is merely a correction, which has completed already. Retest of 150.87 should be seen next.

In the bigger picture, no change in the view that price action from 151.89 (2023 high) are correction to up trend from 127.20 (2023 low). The question is whether this correction has completed at 140.25, or extending with fall from 150.87 as the third leg. Sustained break of above mentioned 146.81 fibonacci level will favor the latter case. But even so, downside should be contained by 50% retracement of 127.20 to 151.89 at 139.54.

Economic Indicators Update

NIESR forecast UK GDP to grow by 0.3% in Q1, aligns with a pattern of "low, but stable economic growth," suggesting a potential "turning point" for the nation after slipping into a technical recession in the latter half of 2023.

The forecast comes with a critical analysis of UK's economic stagnation, emphasizing the necessity for "structural changes" to break free from the so-called low-growth trap. The institute's recommendation underscores the importance of bolstering public investment, particularly in pivotal areas such as infrastructure, education, and health.

Full NIESR release here.

Eurozone industrial production fell -3.2% mom in January, much worse than expectation of -1.0% mom. Production increased by 2.6% for intermediate goods, increased by 0.5% for energy, decreased by -14.5% for capital goods, decreased by -1.2% for durable consumer goods, decreased by -0.3% for non-durable consumer goods.

EU industrial production fell -2.1% mom. Among Member States for which data are available, the largest monthly decreases were recorded in Ireland (-29.0%), Malta (-9.4%) and Estonia (-6.6%). The highest increases were observed in Poland (+13.3%), Slovenia (+10.6%) and Lithuania (+7.2%).

Full Eurozone industrial production release here.

• EURGBP gets rejected near 50-day SMA after rebound
• Market structure develops into a bullish double bottom pattern
• Buyers need a rally above 0.8577 to dominate

EURGBP could not surpass its 50-day simple moving average (SMA) at 0.8553 on Tuesday. However, the bullish double bottom pattern, which started to take shape around February’s base of 0.8500, might generate buying interest in the coming sessions in hopes the pair will soon stage an upside trend reversal.

The technical indicators have turned upwards, showing some improvement in market sentiment, but the RSI still needs to surpass its 50 neutral level. Moreover, the moving averages haven’t changed trajectory.

Traders should exercise caution until the price surpasses the 50-day SMA and closes above the neckline at 0.8577, which also aligns with the 38.2% Fibonacci retracement level. In the event that the bullish scenario materializes, the pair could be propelled strongly towards the 0.8600-0.8615 area. Should the pair breach the 61.8% Fibonacci of 0.8630 too, the recovery phase could pick up steam towards 0.8670.

Alternatively, if the price remains trapped below the 50-day SMA and pulls below the 23.6% Fibonacci of 0.8545, it might again seek support near the 0.8500 floor. A downtrend resumption beneath that threshold is expected to stabilize around the descending line from November at 0.8470 and then stretch into the 0.8400-0.8430 zone last seen in August 2022. Slightly lower, the August 2022 low of 0.8340 might next attract attention.

In brief, EURGBP set a strong foothold around the 0.8500 mark, which was also a major support zone in 2023, increasing optimism that the previous downward pattern will soon come to an end. That said, traders will wait for a confirmation above 0.8577. 

AUDUSD is holding within a narrow range around 0.6600 handle on Wednesday, after the pullback in past three days started to run out of steam.

Tuesday’s long-legged Doji signaled indecision and hinting that corrective phase might be close to the end, as picture on daily chart remains bullish (strong positive momentum / MA’s in bullish setup forming multiple bull-crosses).

Near-term action stayed above descending 55DMA for the fifth straight day, adding to initial positive signals, however more evidence will be needed to signal the bottom of corrective pullback.

Repeated close above the base of falling daily cloud will be a minimum requirement, with close above Tuesday’s spike high (0.6638) to strengthen near-term structure and shift focus to the upside, for renewed attempt at key near-term barriers at 0.6667/70 (Mar 8 recovery peak / daily cloud top).

Res: 0.6638; 0.6670; 0.6707; 0.6728.
Sup: 0.6584; 0.6572; 0.6555; 0.6543.