Posted: 23 Jul 2010 01:38 AM PDT

The British economy grew by 1.1% in the second quarter of 2010 according to the first release. This is a very impressive leap, much higher than 0.6% that was expected. GBP/USD reacts with a leap against the dollar, breaking the 1.5350 resistance line and continuing north. Update on the recovering Pound.

Early expectations stood on a growth rate of 0.6%, double the growth rate of Q1. The actual result, 1.1%, is almost double the early forecasts and almost 4 times the growth rate in Q1. Let’s see the lines:

GBP/USD now trades at 1.5397, up from around 1.5300 before the release. The release, at 8:30 GMT, created a gap in the 30 minute graph, as this result took traders by surprise.

Above 1.5350, the next minor line of resistance is at 1.5470, which was a peak last Friday. Much more significant resistance is found at 1.5520, which was a stubborn line of resistance, tested multiple times in April.

Above, 1.57 provides minor resistance, after being a line of support last year. 1.5833 is already a very strong line, serving as a support line before the Pound collapsed, and capping an attempt to recover afterwards.

In case the Pound falls, it will find support at the 1.5350 it just broke, followed by 1.5230 and 1.5130, which served as minor lines of support and resistance recently.

Earlier this week, the MPC meeting minutes showed that there’s still only one member, Andrew Sentance, that supports a rate hike. The others wanted to see low rates in order to help the economy. Now it seems that the economy is doing well, and that a rate hike won’t hurt the attempts to recover.

Also retail sales, published yesterday, came out better than expected, with a rise of 0.7% (0.5% expected) and provided another sign that the economy is improving. Will we soon see a rate hike in Britain?

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Forex Daily Outlook – July 23 2010

Posted: 22 Jul 2010 02:00 PM PDT

Canada’s Core CPI, Europe’s Bank Stress Test Results and other optimistic forecasts close another trading week. Here is an outlook on today’s economic events.

In Canada, Core CPI expected 0.1% rise following 3.0% rise in the past two months while CPI is expected a 0.2% dip following 3.0% rise last month.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, Bank Stress Test Results, released today, designed to show that Europe’s banks are able to cope with further economic crisis to strengthen confidence in the sector as it emerges from the financial crisis to face mounting pressure from tighter capital requirements, extra taxes and additional regulation.

More in Europe, German Ifo Business Climate forecasted a slight drop to 101.5 points – 0.3 points weaker than last month ensuring stability for the Euro.

Later in Europe, French Consumer Spending predicted 0.3% rise following 0.7% rise in the previous month. Let’s hope this trend will boost the market. Italian Retail Sales are also expected a 0.2% rise following a 0.3% drop in the previous month.

Finally in Europe, National Bank of Belgium business Climate index a leading indicator of economic health expected another drop to -7.9 points following -7.7 points in May.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Preliminary GDP: After two quarters of growth another rise of 0.6% is expected now which means good news for the British economy.

More in Great Britain, BBA Mortgage Approvals forecasted 37K rise the highest this year following 36.7K in June. As a leading indicator of housing market demand the figures show a growth trend that certainly gives room for optimism.

Finally in Great Britain, Index of Services measures the change in the total Gross Value Added of the private and government services sectors; expected 0.7% rise proceeding Last month 0.6% rise.

Read more about the Pound in the GBP/USD forecast.

In Australia, Import Prices predicted another rise of 0.1% following 0.3% rise in the previous quarter.

For more on the Aussie, read the AUD/USD forecast.

That’s it for today. Happy forex trading!

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5 Reasons Why The Stress Tests Could Hurt EUR/USD

Posted: 22 Jul 2010 10:13 AM PDT

On Friday at 16:00 GMT, the European stress tests results will be released. In the past few weeks, EUR/USD enjoyed weak American data, and also enjoyed the anticipation for the European stress tests. With the terrible European debt crisis, these results are supposed to show that the banks are stable, and to mark the end of the crisis.

But it doesn’t have to be necessarily so:

Learning from the past: The American stress tests that were conducted over a year ago, were positive, but didn’t boost the contrary. The dollar continued falling in May 2009, and this trend continued for many months. The explanation was risk appetite trading – traders felt relieved and went for more “risky” currencies, and also stocks.
Methods: The methods of these stress tests are unclear. The European authorities will probably publish some of the methods, but it might not necessarily convince everybody that these tests are serious.
Sell by the fact: The Euro already rallied in anticipation of the expected positive outcome. It could easily be a case of “buy by the rumor, sell by the fact” – a Euro sell off can possibly begin after the results are released.
Timing: The results are released at 16:00 GMT on Friday, as the London session ends. As it often happens on Fridays and also last Friday, many traders avoid holding “risky” assets over the weekend. The Euro could drop regardless of the stress test results.
Bad results: While the expectations are for positive results, with a vast majority of institutions passing the tests, this isn’t guaranteed. A scenario of gloomy results cannot be ruled out.

How do you think that the stress tests will impact EUR/USD?

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