The British pound has been put into a holding pattern for nearly three weeks against its US counterpart as the market waits for a significant shift in fundamentals to usher the pair into the next leg of its trend. This economic turning point may very well be the UK’s third quarter GDP report. The first of the G7 to release its growth numbers, the report may very well be a guide not only to the health of the domestic economy and the Bank of England’s disposition, it may also set the standard on 3Q GDP forecasts for the entire global community. Looking at the market’s reaction following the previous three advanced readings, the price action has been relatively muted. After 60 consecutive quarters of growth, annualized expansion has stabilized around 3.0 percent; and economists have grown used to this pace. Heading into the event risk, the market consensus is calling for a modest cooling in the quarterly print from 0.8 percent in the period through June to 0.7 percent. At the same time, the year-over-year measurement is expected to hold steady at 3.1 percent. Consistency seems to be an important condition for a significant market reaction – as the response to the fourth quarter release would suggest.

The recent release of the stronger than expected September retail sales report suggests consumer spending may be a key contributor to positive growth. Should annual growth accelerate to 3.2 percent or above – and/or the quarterly measurement outpace its own consensus – economists and market participants may very well imply that expansion can survive with a currency pushing new multi-decade highs; and that the central bank can focus on alleged inflation pressures in the pipeline. With strong GDP readings from both the quarterly and annual figures, we will look for a five minute green candle to confirm entry on a long, two lot GBPUSD position. The stop for both lots will be set either at the nearby swing low or at a reasonable, fixed distance. The target on the first half of the trade will equal the distance to the stop, while the second lot’s objective should be taken on discretion. When the first lot takes profit, the stop on the second should be moved up to break even to conserve profit.

Considering a possible bearish scenario, there are more than a few sectors that could overwhelm the strength found in consumer spending. The visible trade balance set a record low, industrial production has stagnated and the financial services industry has been roiled by a July rate hike and waning confidence due to the first run on a UK bank in over a century. Should the GDP numbers cross the wires worse than expected, we will use the same criteria and strategy setup for a short as we would for the long, except in reverse.

Jamie Saettele is a Technical Currency Analyst for FXCM.