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UK services PMI preview: What to expect of GBP/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 3, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - The GBP/USD pair once again ran into offers as it neared 1.4445 levels and now trades below 1.44 levels. The immediate focus is on the all important UK services PMI figure for January. The data is a big market mover and rightfully so since the service sector is the largest contributor to UK GDP.

    Sterling could be buoyed by better-than-expected PMI

    The UK January services PMI index is expected to come-in at 55.3; which is slightly lower than the December’s reading of 55.5. Moreover, the December reading was weaker-than-expected and was mainly hurt by the drop in the new business growth. The employment growth had slowed down as well.

    The first move in the GBP is likely to be driven by the headline number. The details may receive market attention later, especially since BOE quarterly inflation report is due tomorrow. A weaker headline figure, coupled with dismal sub indices could provide more space for the BOE to come out dovish tomorrow. Hence, Sterling could take a beating and may take out critical support at 1.4351 (23.6% of 1.5230-1.4079).

    On the other hand, a better-than-expected figure would be good news and could see the pair finally chew through offers around 1.4445 levels. However, upside should be viewed with caution since the UK derivatives markets have began pricing-in a BOE rate cut in the next six months.

    GBP/USD Technical Levels

    The spot is now trading around 1.4385. A break above the immediate resistance at 1.4445 (previous day’s high) would open doors for a rise to 1.4476 (strong resistance on the hourly chart), which if taken out could see the pair test 4516 (23.6% of 1.5930-1.4079). On the other hand, the pair could find immediate support at 1.4351 (23.6% of 1.5230-1.4079) could see the pair drop to 1.4324 (5-DMA). A break lower would expose 1.4292 (10-DMA).
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