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Highlights
- It is a relatively busy start to a quiet week for the GBP to USD, with flash private sector PMI in focus.
- Until now, the UK economy has shown resilience to aggressive BoE rate hikes. An unexpected contraction across the services sector would test the theory.
- Near-term indicators are bearish, with the bears eying a return to sub-$1.28.
On Friday, the GBP to USD fell by 0.12% to wrap up the day at $1.28519. Market bets on a US soft landing delivered a six-day losing streak.
This morning, flash private sector PMIs for July will move the dial. We expect the service sector PMI to garner more interest. However, investors should consider the sub-components, including input and output price inflation and employment. Economists forecast the service sector PMI to fall from 53.7 to 53.0.
The services sector accounts for over 70% of the UK economy, making the markets sensitive to service-sector-related stats. A slump in services sector activity would signal deteriorating labor market conditions and easing price pressures. Such a scenario would allow the BoE to consider taking its foot off the gas.
No Monetary Policy Committee members are on the calendar to speak today, leaving comments to the media to influence.
The US Session
Prelim private sector PMI numbers for July will be in focus later today. We expect the services PMI to have more impact on market risk sentiment. However, investors should consider the sub-components, including prices, employment, and new orders.
A hotter-than-expected services PMI would support a more hawkish Fed.
The services sector accounts for more than 70% of the US economy, making the markets sensitive to service-sector-related stats. A pickup in services sector activity would support improving labor market conditions and demand-driven price increases. Such a scenario would force the Fed to push interest rates higher to curb demand and hiring to ease inflationary pressures.
GBP to USD Price Action
Daily Chart
The Daily Chart showed the GBP to USD sat below the $1.3255 – $1.3195 resistance band after a six-day losing streak. Looking at the EMAs, the GBP to USD remained above the 50-day ($1.27190) and 200-day ($1.24095) EMAs, signaling bullish momentum over the near and long term.
Notably, the 50-day EMA continued to pull away from the 200-day EMA, affirming the near-term bullish trend.
Looking at the 14-Daily RSI, the 53.35 reading sent moderately bullish price signals, which aligned with the 50-day and 200-day EMAs. A GBP to USD return to $1.2950 would give the bulls a run at $1.30. However, a fall to sub-$1.2850 would bring the lower level of the $1.2862 – $1.2785 support band and the 50-day EMA ($1.27190) into view.
4-Hourly Chart
Looking at the 4-Hourly Chart, the GBP to USD sits below the upper level of the $1.2862 – $1.2785 support band. The GBP to USD remains below the 50-day EMA ($1.29310) while holding above the 200-day EMA ($1.27861), sending bearish near-term but bullish longer-term signals. Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a fall through the $1.2862 – $1.2785 support band and the 200-day EMA ($1.27861).
However, a GBP to USD return to $1.29 would support a breakout from the 50-day EMA ($1.29310) to target $1.30.
The 14-4H RSI reading of 37.94 sent bearish signals, with selling pressure outweighing buying pressure. Significantly, the RSI aligns with the 50-day EMA, signaling a fall through the $1.2862 – $1.2785 support band and the 200-day EMA ($1.27861).
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