Key Points
- GBP/USD falls to a two-month low, with traders ruling out aggressive cuts, if any.
- UK PMI figures come in weak, but the pound holds up firm.
- US PMI figures are expected to remain unchanged, but the barrier for solid data is high.
- Is GBPUSD shaping up for a bullish reversal?
Market Overview
It has been yet another good week for GBP/USD sellers, with the popular forex pair falling to a two-month low on Wednesday. The markets have experienced an aggressive dollar recovery in recent weeks due to expectations of more aggressive Federal Reserve hikes falling dramatically.
Now, the markets are pricing in smaller 25bps hikes, if any at all, and this is helping the dollar reverse its losses over the summer. However, now that this has been priced in, the recovery may pause or even reverse if weaker data floods in.
UK PMI Comes In Weak
Concerns over the UK economy have been heightened recently since the fall in inflation below the Bank of England’s targets. With interest rates still being in restrictive territory, there are calls for the BoE to take action fast.
Today, the UK Manufacturing PMI figure took a tumble from 51.5 to 50.3, approaching contraction territory. The Services PMI also weakened to 51.8 from 52.3, with a downward revision from the previous month’s figure. Despite this, the pound did not sink, which is an indication of selling power becoming exhausted.
US PMI Figures Inbound
The US PMI figures are due out at 2.45 pm (BST), and the forecast is for the statistics to remain unchanged. A Manufacturing PMI figure of 47.5 and a Services PMI figure of 55.0 are expected. This would still show a decline in the manufacturing sector and an expansion in the services sector. Unless the figures improve, it will be hard to impress the dollar bulls with the barrier for solid data now set very high.
GBP/USD Bullish Reversal Potential
GBP/USD has been trending lower for some time but has now reached a higher timeframe support level at 1.29000. Since then, the market has recovered nearly 100 pips, the first sign of the reversal.
The second sign of a reversal is the clear bullish RSI divergence seen since the beginning of the month. The confirmation would come should the price break out of the trend line at 1.30000, where the bulls may then target a move up to 1.31000.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
