GBP/USD – Pound Rally Continues as Services PMI Sparkles

The British pound is on a roll, and continues to post gains against the retreating dollar. The pound was buoyed by a red-hot Services PMI. The key index posted its highest level in over six years. In Monday’s North American session, GBP/USD is trading in the low-1.53 range. Later on Monday, the UK will release BRC Retail Sales Monitor. In the US, there was only one release to start off the week. ISM Non-Manufacturing PMI climbed from 52.2 to 56.0 points. This easily surpassed the estimate of 53.2 points.

The pound was manhandled by the US throughout last week and only managed to reverse direction on Friday, courtesy of a strong UK Construction PMI. The rally has continued on Monday, and GBP/USD has climbed over two cents since early Friday. The pound has now recovered most of the losses sustained last week at the hands of the dollar.

Another PMI release, another multi-year high. This has become the pattern we’re seeing from British PMIs. On Monday, Services PMI jumped from 56.9 to 60.2 points. This was not only a sharp rise by the key index, but its highest level since December 2006. This excellent reading easily beat the estimate of 57.4 points. Last week, Construction and Manufacturing PMIs also looked very sharp. The PMIs are important gauges for economic activity, but strong PMIs don’t mean that the sluggish British economy has suddenly transformed into a lean, mean fighting machine. For example, although Manufacturing PMI readings have been moving higher, Manufacturing Production has posted two straight declines. If this key indicator can turn things around and post a respectable gain, this would be an excellent indication of an improving manufacturing sector.

Over in the US, after solid releases from ADP Non-Farm Employment Change and Unemployment Claims last week, the markets were hoping that Non-Farm Employment Change would keep the pace, but it was not to be. The key indicator dropped from 195 thousand to 162 thousand, and was way off the estimate of 182 thousand. The US unemployment rate dropped from 7.6% to 7.4%, its lowest level in over four years. However, this figure is not as impressive as it may seem at first glance, keeping in mind that the participation rate in the US employment market actually dropped and is hovering just over 63%. This is a weak figure, and points to trouble in the labor market, even with a lower unemployment rate.

GBP/USD for Monday, August 5, 2013

GBP/USD August 5 at 14:10 GMT

GBP/USD 1.5325 H: 1.5378 L: 1.5260

GBP/USD Technical

GBP/USD continues to post gains on Monday. The pair has been volatile and touched a high of 1.5378 early in the Asian session but has since retracted. GBP/USD is receiving support at 1.5309. This is a weak line and could be tested if the dollar can reverse direction. There is stronger support at 1.5203. This line has strengthened as the pair trades at higher levels.

On the upside, the pair faces resistance at 1.5432. This is followed by resistance at 1.5527.

• Current range: 1.5309 to 1.5432

Further levels in both directions:

• Below: 1.5309, 1.5203, 1.5111, 1.5000, 1.4896 and 1.4781
• Above: 1.5432, 1.5527, 1.5645 and 1.5756

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement in the direction of long positions. This is reflected in the movement of the pair, as the pound continues to make inroads against the US dollar. Short positions make up a majority of the ratio, indicating trader sentiment is biased towards the US dollar reversing direction and moving higher.

The pound continues to move higher against the US dollar, continuing a trend which started on Friday. With the US posting a strong ISM Non-Manufacturing PMI a bit earlier, we could see the dollar stem the pound’s rally and move higher during the day.

GBP/USD Fundamentals

• 8:30 British Services PMI. Actual 60.2 points. Estimate 57.4 points.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 53.2 points. Actual 56.0 points.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.