The British Office for National Statistics (ONS) released its latest figures for UK Gross Domestic Product at 9:30 GMT yesterday. The quarterly figures were worse than hoped for, at 0.5% growth as against 0.6% expected. Full year growth was 2.7%, while 2.8% had been expected by the market (Data analyst agencies poll a number of economists in order to find out what is expected).
The initial market reaction was typical. Lower GDP than the consensus estimate, therefore the pound sterling (GDPUSD), otherwise known as Cable, must be marked down. And it was, for a while. Our Mandelbrot algorithmic took on a short trade (expecting the rate to continue down) when it saw the way the rate was going, and for about an hour after that this looked like a good decision.
Then some of the larger market participants, the ones that move the market, seem to have noticed that while quarterly figures were down and while the year-on-year figure was lower than the consensus estimate, that number was actually higher than for last year, which was 2.6%. The British economy might not be so bad after all (and it is not. This figure makes annual growth as high as it has been for seven years). Add to that the fact that Sterling was somewhat beaten down since last week’s shenanigans around the Euro, and the exchange rate was ripe to go in the other direction. Which it did.
But the Mandelbrot algorithmic routine is ready
Mandelbrot abandoned its short position (which expected the rate to fall) for a small loss and took up another one which harmonised with the newly prevailing sentiment to the upside. The end result was a net gain for the day for this pair.
What is of abiding interest is the trajectory of the exchange rate on the 10-minute chart above, in the time prior to the rise after the short trade was placed. The 200 period Exponential Moving Average (EMA) acted as an almost impenetrable barrier to any fall below it.