The bad news keeps on pouring in for the pound. Sterling dropped 0.4% versus the dollar in the previous session after manufacturing activity contracted at the fastest pace in two years.
Whilst data is stacking up against the pound, so are domestic political developments. Yesterday MP’s failed in their latest bid to stop a no deal Brexit whilst Boris Johnson’s hawkish approach to Brexit also unnerved pound traders. With both Tory leadership candidates willing to accept a no deal Brexit, the prospects for the pound are not great.
Attention will swing towards the pmi for the UK’s dominant service sector which is due for release tomorrow. Expectations are for the service sector to remain steady at 51 in June. However, when the manufacturing pmi and the construction pmi miss expectations it isn’t uncommon for the service sector pmi to underwhelm.
Dollar eases ahead of non-manufacturing ISM data
The dollar was broadly in favour in the previous session as investors cheered the US – Sino trade truce and the possible implications for the global economy. Not even US manufacturing activity dropping to a two-year low could deter the dollar bulls. However, today, in the cold light of day the dollar is encountering some weakness. With data pointing to a weakening US economy and with a lot of work still needed to turn a trade truce into a trade agreement, the Fed are unlikely to press the pause button again right now.
US non-manufacturing is due this afternoon. It is expected to show that the dominant US service sector remains solid at 56. This could offer some support to the dollar, should consumers underpin the economy amid a slowing manufacturing sector.
Levels to watch;
GBP/USD has broken through 50, 100 ad 200 sma on 4 hour chart, showing bearish momentum. Critical support is so far holding at $1.2605, should the pair break through this level, further strong support can be seen at $1.2505. Beyond there the next level to watch is $1.2475.
On the upside resistance at $1.2660 followed by $1.2740 come into play.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.