GBP/USD dips after UK GDP miss; Gold confirms breakout – Market Brief, December 22, 2022

The British pound trades lower amidst a miss in UK GDP data, while indices followed through on bullish hammer patterns and gold held above $1800 resistance. US Q3 GDP is today’s main datapoint.

-Indices follow through on hammers

-GBP/USD drops after final UK GDP miss

-Gold confirms breakout

Indices follow through on hammers

Yesterday saw some bullish follow-through. The Dow Jones Industrial Average gained 526 points to finish at 33,376. The S&P 500 jumped 1.49% to settle at 3,878. 

Wall Street was helped higher by well-received earnings from Nike and FedEx, two blue chip bellwethers for the US economy and global supply chains. Nike jumped 12% after topping earnings expectations, lifting other retail stocks during the critical holiday sales period.

GBP/USD drops after final UK GDP miss

While most currency pairs moved higher versus in the USD over the past 24-hours in a generally risk on tone, the British pound bucked the trend, extending its recent move down from a peak of over 1.24 last week to below 1.21. 

On Thursday morning, the final iteration of UK GDP, typically a non-event given its ‘rear view mirror’ nature of reporting data from 3 months ago, surprised to the downside, coming in at -0.3% versus -0.2% in the prior release. It highlighted the economic weakness of the UK, which the Bank of England has said is already in recession. 

If the Bank of England keeps raising rates to try and beat inflation, traders may be unwilling to ‘go long’ on GBP/USD. This is because an extended recession makes it look like the Bank of England will have to pause their rate hikes (or even cut rates again), making it a riskier investment.

Gold confirms breakout

The price of gold dipped on Wednesday but traded in tight range and importantly held above critical resistance turned support at $1800 per oz. 

Weakness in the US dollar and a generally cautious tone from investors with rising expectations for a recession next year have all supported the price of gold over the past few weeks. Gold has risen around $200 since falling to a two-year low in late September.

The next important driver could be PCE inflation data. If US inflation continues to trend down, that should weigh on the USD and support gold.

Data recap

The USD/CAD pair formed a ‘spinning top’ candlestick pattern after conflicting CPI data left traders in a state of indecision. Headline CPI came in above expectations at 6.8% YoY vs the 6.7% expected, though still down from 6.9% prior. However the Bank of Canada edition missed expectations for a rise to 6.4%, remaining unchanged at 5.8% YoY.

Coming up 

The final US Q3 GDP estimate will be released at 13:30 GMT. Expectations are that growth remained unchanged at 2.9% YoY from July through September. Any downwards revision could add an impetus to the dollar downtrend, which has paused over the last week. A positive surprise could help extend the correction.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters 

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