GBP/USD seems to have forgotten about Brexit
has probably stopped worrying about Brexit and found reasons to rise. The latest upwards driver has come from UK data. The Markit/CIPS services purchasing managers’ index (PMI) for May has risen to 51 points – not only beating expectations but also breaking the losing streak of the previous PMIs. The score above 50 represents an expansion in Britain’s largest sector – sending GBP/USD to the highest levels in a week.
The currency pair has also continued enjoying the weakness of the US dollar. Federal Reserve Chair Jerome Powell has deviated from pledging patience on interest rates by saying that the Fed will “act as appropriate” – seemingly opening the door to a rate cut.
However, Powell may be ready to slash rates in response to the potentially adverse impact of the trade wars – which undermine global growth and usually weigh on GBP/USD. Markets are currently focusing on the positive impact of a rate cut and ignoring the US-Sino spat which is persisting at full force.
China has fined America’s Ford for allegedly violating anti-monopoly rules and the US is exploring a diversification away from its dependency on Chinese rare earth imports. Both developments are only the latest in the clash of the world’s largest economies.
And as mentioned at the outset, the pound has been ignoring Brexit. Borish Johnson – the leading candidate to succeed Theresa May as PM – has said that the Conservative Party would face “extinction” if the UK does not leave the EU at the current deadline of October 31st. The party has set the rules of the contest and aims to place a new PM at 10 Downing Street by July 22nd. Candidates will need the support of at least eight MPs to participate – perhaps causing some of the contenders to drop out already today.
Looking forward, two significant data points await GBP/USD traders. The ADP private sector report serves as a hint toward the official jobs report on Friday. The ISM Non-Manufacturing PMI provides an insight into the services sector – and provides the last hint towards the all-important employment report.
All in all, US data — which impacts the – and political developments will be of interest.
GBP/USD Technical Analysis
GBP/USD has crossed the 100 Simple Moving Average on the four-hour chart – a bullish sign. This break higher joins the move above the 50-SMA and upside momentum as positive hints. Moreover, the relative strength index is rising but refraining for entering overbought conditions.
Resistance awaits at the late-May high of 1.2750. The next cap is 1.2815 which was a swing high in late May as well. Further above, 1.2870 was the low point in April and 1.2900 provided support in early May.
Today’s low of 1.2690 is the immediate line of support. It is followed by 1.2640 which was a swing low earlier in the week, then by 1.2605 that was a trough in late May, and finally, by 1.2560, the lowest point in four months, recorded in late May.