Key Highlights
- The British Pound extended its decline below the 1.2600 support area against the US Dollar.
- GBP/USD remains in a strong downtrend unless it recovers above 1.2750.
- The UK Manufacturing PMI declined sharply from 53.1 to 49.4 in May 2019.
- The UK Construction PMI might remain stable at 50.5 in May 2019.
GBPUSD Technical Analysis
In the past few weeks, there was a steady decline in GBP/USD below 1.2800 and 1.2700. The British Pound even settled below 1.2700 to move into a major downtrend against the US Dollar.
Looking at the 4-hours chart, the pair failed to stay above 1.3000 and started a significant decline below 1.2900, 1.2800 and even 1.2700. Finally, the pair broke the 1.2600 support and settled below the 100 simple moving average (red, 4-hours).
A new monthly low was formed at 1.2558 before the pair started a short term upside correction. It recovered above the 1.2620 level and tested the 50% Fib retracement level of the downward move from the 1.2747 high to 1.2558 swing low.
However, there are many hurdles for the bulls waiting near the 1.2675 and 1.2700 levels. There is also a bearish trend line formed on the same chart with current resistance near 1.2780.
The main resistance is near the 1.2750 level and the 100 simple moving average (red, 4-hours). A successful close above the 1.2750 resistance could start a decent recovery in the near term.
Conversely, if the pair fails to move above 1.2700 or 1.2750, it might continue to move down towards 1.2500 in the coming days.
Fundamentally, the UK Manufacturing Purchasing Managers Index (PMI) for May 2019 was released by both the Chartered Institute of Purchasing & Supply and the Markit Economics. The market was looking for a minor decline from 53.1 to 52.0.
However, the actual result was disappointing since there was a sharp decline to 49.4 (fell below the neutral 50.0 benchmark for the first time since July 2016).
The report stated that:
Manufacturers reported increased difficulties in convincing clients to commit to new contracts during May. This mainly reflected the already high level of inventories following recent stockpiling activity in advance of the original Brexit date.
Overall, GBP/USD remains in a strong downtrend and there is a risk of more losses below the 1.2550 and 1.2500 levels in the near term.
Economic Releases to Watch Today
- UK’s Construction PMI for May 2019 – Forecast 50.5, versus 50.5 previous.
- Euro Zone CPI for May 2019 (YoY) (Prelim) – Forecast +1.3%, versus +1.7% previous.
- Euro Zone Core CPI for May 2019 (YoY) (Prelim) – Forecast +0.9%, versus +1.3% previous.
