Key Highlights
- GBP/USD failed to stay above the 1.3150 support and declined sharply below 1.3100.
- A crucial expanding triangle is forming with support near 1.2984 on the 4-hours chart.
- The UK Manufacturing PMI increased from 49.8 to 50.0 in Jan 2020.
- The UK Construction PMI could rise from 44.4 to 44.9 in Jan 2020.
GBP/USD Technical Analysis
This past week, the British Pound recovered nicely from the 1.2977 low against the US Dollar. GBP/USD surged above the 1.3100 resistance, but it struggled to stay above 1.3150 and declined heavily.
Looking at the 4-hours chart, the pair traded as high as 1.3209 and recently started a sharp decline. There was a break below the 1.3100 support level and the 100 simple moving average (red, 4-hours).
Moreover, the pair declined below the 50% Fib retracement level of the upward move from the 1.2977 low to 1.3209 high. It seems like the pair trimmed most its gains and it remains at a risk of more losses.
More importantly, there is a crucial expanding triangle forming with support near 1.2984. If the pair fails to stay above the 1.3000 support and the 1.2980 area, it could decline heavily.
The next major support is near the 1.2940 and 1.2920 levels. Conversely, GBP/USD might bounce back from either 1.2980 or 1.3000. On the upside, an initial hurdle is near 1.3080, above which the pair might rise towards the 1.3150 resistance area.
Fundamentally, the UK Manufacturing Purchasing Managers Index (PMI) for Jan 2020 was released by both the Chartered Institute of Purchasing & Supply and the Markit Economics. The market was looking for no change in the PMI from 49.8.
The actual result was better than the forecast, as the UK Manufacturing PMI increased from 49.8 to 50.0, as new orders, employment and business confidence rise.
The report added:
The start of 2020 saw the performance of the UK manufacturing sector steady following the downturn experienced through much of last year.
Overall, GBP/USD might bounce back as long as there is no close below 1.2980. Similarly, EUR/USD must stay above 1.0000 to remain in a positive zone. If not, it could slide sharply below 1.0990.
Upcoming Economic Releases
- UK’s Construction PMI for Jan 2020 – Forecast 44.9, versus 44.4 previous.
- US Factory Orders for Dec 2019 – Forecast +1.1%, versus -0.7% previous.
