GBPUSD – game - changing data?

According to the first estimate the GDP in UK contracted by 0,5% q/q
in the final quarter of 2010. The data shocked the market anticipating
an expansion of this scale. Moreover, the data further complicate the
picture of the British economy and make the task for the Bank of
England even more challenging. The Bank was already under pressure
from the rising inflation yet was also confronted with a fragile
recovery and a possible negative effect of fiscal consolidation. A
contraction renders rates untouchable at the moment and means the BoE
has no tools to combat rising inflation.

That means the data is truly negative for the pound and the influence
may extend beyond yesterday's slump (GBPUSD fell from 1,60 to below
1,58). Actually, one may notice a possible head and shoulders
formation on the weekly interval – even a test of a neckline here
would drag the GBPUSD to around 1,54. Obviously, the developments on
the pair will be under continuous influence from the EURUSD. However,
should a room for further advances on the EURUSD be indeed limited (as
we indicated yesterday), the domestic data may only help bring the
pair down.

*EURUSD – Fed without T.Hoenig*
The FOMC will announce the statement today but the text is unlikely to
unveil any major surprises. What might be important is if there are
any dissidents. The FOMC has four votes rotating every year among
presidents of regional districts and that means this time there will
be no dissenting view from T.Hoenig – a hawk who strongly opposed an
introduction of QE2 and argued for higher interest rates. The markets
expects an unanimous vote today so should C.Plosser and/or R.Fisher
break out, the dollar could recover some of the recent losses (the
chairman should seek a consensus and two dissidents should already be
uncomfortable for him, probably pushing the Committee towards somewhat
more restrictive tone later in the year).

Meanwhile, the EURUSD has took advantage of a the trend line and used
it as a support, continuing advances towards the resistance around
1,3750. Breaking the trend line (actually around 1,3630) would
increase odds for further declines but only breaking the support at
1,3540 would suggest a possible turnaround on the pair.

*Events to watch – Fed, BoE minutes, US data*
Fed's statement will be released at 2.15 ET (20.15 CET). BoE's
minutes released earlier (4.30 ET, 10.30 CET) might provide another
opportunity to adjust position for the GBP investors however
informational value of the report will be limited – at the last
meeting the Council wasn't aware of a higher inflation, let alone
the GDP data. Ahead of the FOMC investors will be looking for the
release of the new home sales (10.00 ET, 16.00 CET, consensus 300k)
and the US fuel inventory data (10.30 ET, 16.30 CET).
Source: Fxstreet.com