ANALYSIS OF THE POUND STERLING AND CONVERSION POINTS
FUNDAMENTAL CONTEXT GBP/USD
Entry prices have soared globally and this is no different in the UK as manufacturers felt the pinch. Manufacturing PMI‘s headed into contractionary territory for the first time since May 2020, but saw a reaction to GBP’s lower lows with services data beating estimates. The reaction function for sterling makes logical sense approximately 80% of the United Kingdom GDP it is generated from the service sector, which is why cable finds some offers. That said, the composite figure (50.9) remains marginally within expansionary territory, highlighting the declining state of the UK economy which does not bode well for the pound if this trajectory continues.
ECONOMIC CALENDAR GBP/USD
Source: DailyFX Economic Calendar
Ahead of today’s UK PMI data, we’ve seen misses in key economic metrics including retail sales, consumer confidence and the labor market. These unfavorable releases for the pound come under the cloak of debauchery inflation both in the basic components and in the headlines, making the Bank of England (BoE) job much harder to navigate the higher up interest rate will certainly exacerbate consumer concerns. The energy landscape remains bleak and with Europe heading into the winter months, the potential for energy prices to rise is high. What this means for sterling against the greenback are significant headwinds and, consequently, downside risk as the US and UK economies look to diverge, favoring a safe haven USD.
TECHNICAL ANALYSIS
GBP/USD DAILY GRAPH
Picture made by Warren Venketas, GI
GBP/USD Daily price action post-PMI has preferred service data over significant manufacturing error. The resulting move has uncovered a lower long wick on today’s daily candle and may point to a consequent rise ahead of the Jackson Hole Economic Symposium later this week. Profit-taking may also be on the cards after the wire’s sharp decline, however, hawkish expectations around Jackson Hole may see a resumption of the downtrend towards the rear support zones.
Key resistance levels:
Key levels of support:
MIXED FEELING FROM THE IG CUSTOMER
IG Customer Sentiment Data (IGCS) shows that retail traders are currently LONG activated GBP/USDwith 80% of traders currently holding long positions (as of this writing). At DailyFX we normally take a contrary view to crowd sentiment, but due to recent changes in long and short positioning, we come to a cautious bias.
Contact and follow Warren on Twitter: @WVenketas
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