GBP/USD

GBP/USD Struggles to Gain Following UK PMI Beat

GBP/USD rallied sharply higher at the start of the week but has since then struggled to overcome the same resistance level that held it lower last month.

The lack of upward movement today comes despite a positive economic report from the UK. The latest survey data from purchasing managers showed the manufacturing sector expanding for a second straight month while the services sector has now also moved into an expansion.

The combined index rose to 57.1, which reflects a 61-month high, after briefly dipping below 10 in April. The surge in business activity is attributed to the easing of lockdown restrictions.

While the data was positive, Chris Williamson from IHS Markit warned that there is still “a long way to go before the output lost to the pandemic is regained.” Williamson pointed out that new orders only rose marginally in July and that employment fell sharply.

The US will release similar data later in the day. A further recovery is expected for both the services and manufacturing sector.

Technical Analysis

GBPUSD Daily Chart

The 1.2750 level in GBP/USD served to hold the pair lower in June and has once again proven to be a major hurdle in the week thus far.

The exchange rate tested the level on Tuesday and has failed to overcome it despite several attempts since then.

Support from the 200-day moving average is being respected even though the pair has dipped below it on an intraday basis over the past few days.

With a range playing out once again for GBP/USD, technical traders will be paying close attention to a range break to assess the near-term directional view.

While GBP/USD has had a somewhat unusually strong correlation with equities as of late, it was undeterred by a fall in the S&P 500 yesterday. Nevertheless, there is some downside risk for the pair if the US equity index continues the move lower following the opening bell.

The US dollar index (DXY) is seen testing support from its March low. This area could trigger a dollar bounce although the momentum is clearly to the downside for the greenback at the moment.

Bottom Line

  • GBP/USD failed to rally despite a positive PMI report from the UK today.
  • With major resistance in play for GBP/USD, and the dollar index trading at support, there is some potential for a pullback in the exchange rate.

For a look at all of today’s economic events, check out our economic calendar.