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by Ashraf Laidi
Posted: Feb 22, 2010 5:00
Comments: 3054
Posted: Feb 22, 2010 5:00
Comments: 3054
Forum Topic:
GBP
Discuss GBP
Once the austerity cuts to the public sector parasite start to kick in and bite I see a period of negative growth lasting about 3 years or more. We shall see the occasional blip on the radar but the path will be downward until the private sector can start to soak up unemployment and spare capacity. The major downside risk is the banks who no longer serve the community so investment in small companies who are the key to any recovery will be almost non existent. In addition there is still the threat of another bank crisis and there is risk of anarchy in opposition to the very necessary planned austerity measures.
UK first quarter GDP is the highlight of the European session. The consensus is for a 0.5%-0.6% quarterly rise after a 0.6% contraction in Q4 2010. The average miss for the past two years has been 0.5 percentage points. Its unlikely but a second consecutive quarter of negative growth would push the UK back into an official recession. A positive reading is expected because poor weather and a trough in construction were the drivers of the Q4 negative print.
There is also talk of an upward revision to Q4 because official figures often underestimate growth after a recession. Ahead of the release, cable is bounded by the 1.6431 - 1.6533 range but those levels are unlikely to mount significant support/resistance following the release. The slumping dollar also complicates the trade. The impacts will be felt in a clear and sustained way on the EUR/GBP cross. A poor reading (+0.3% or lower) will drive EUR/GBP toward the Oct. high of 0.8940. A breach of that level would open the way to 0.9150 (spot currently at 0.8900).
From AB - AshrafLaidi.com Staff
Ashraf