What’s Expected

Time of release: 03/28/2008 07:00 GMT, 03:00 EST
Primary Pair Impact : GBP/USD
Expected: 2.0%
Previous: 2.7%

How To Trade This Event Risk

The U.K. housing market has been in a steep decline, and the upcoming March Nationwide House Price measurement is expected to show housing values declined for a fifth straight month. The release hasn’t been market moving the past three months as earlier fundamental data and broader market sentiment has reduced its impact . There hasn’t been a clear bias regarding the pound in sometime and has resulted in the pair being directionless and volatile. The declining housing industry , credit issues and a softening labor market has started to weigh on consumer confidence, which according to the Gfk Survey fell to -17. Nevertheless, Britons have continued their thirst for shopping as retail sales surprised again in February gaining 1.0%, defying expectations of a 0.2% decline. The BoE’s concerns about inflation are starting to be outweighed by the downside economic risks to the economy, which was evidenced at their last policy meeting, when two voter’s dissented to leaving rates unchanged. Governor Mervyn King has recently come out and stated the central bank’s intention to developing long term solutions for the pending liquidity crisis that has lead to the failure of Bear Stearns in the U.S. and the nationalization of U.K.’s Black Rock. Expectations are that the MPC will lower rates a quarter point at their April 10, meeting, as a global slowdown is reducing inflation expectations and will allow them to focus on the systemic issues of the banking system and the contracting economy.

Since, the housing market has been in a multi-month downturn, any sign that it may be bottoming may have a significant affect on price action. Traders have been looking for a reason to bid up the pound and with another Fed rate cut looming, a stronger than expected print may be enough for them to extend the Sterling’s gains from this week. We would have to see a significant surprise to the upside before entering into a position, with prices possible rising. With a confirmed, positive fundamental mix we will look for a five-minute green candle to confirm entry on two lots of GBPUSD. Our initial stop will be set at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on discretion (with a mind resistance levels built overhead) and to preserve profit we will move the stop on the second lot to break even when the first half of the trade reaches its target.

On the other hand, with increasing expectations that the BoE will cut rates at their next meeting, further evidence of the troubled housing market may lead to a pound sell off. We will follow the same strategy for a short as the long above, just in reverse.

David Rodriguez is a Currency Analyst at FXCM.