Earlier in London, GBP/USD climbed to a new five-year high to 1.7175, still shy of the key 1.7300 level. Stellar economic data out of the U.K. and global stocks resuming their uptrend is supporting this rally. Yesterday's key report highlighted that the U.K. manufacturing sector is having its best readings since the 90’s. Today’s construction PMI numbers were solid, but the rally has stalled because the U.S. dollar finally gained a bid on a surprising impressive ADP jobs release. While only printing 5,000 more than the forecast at 205,000, ADP was expected by many to possibly have a big miss. GBP/USD has pulled back to 1.7140 so far but it is our belief that only a blockbuster non-farm payrolls (note NFP will be released tomorrow July 3rd , a day earlier since U.S. markets will be closed on Friday, July 4th) will yield a stronger pullback.
In my last British pound post, I highlighted the bullish channel on the daily chart for GBP/USD that has been in place since last summer will have difficulty breaking above the 1.7300 critical resistance area. I am reiterating that statement verbatim. Price is still completely in a strong bullish stance, highlighted by price trending in the correct order of the three SMAs, which is above the 50-day, 100-day and 200-day SMA. The line in the sand for the bullish rally is still 1.7300, but if this area is taken out, further upside could easily target 1.7500, followed by 1.7800. Immediate downside targets may be reached if one or all of the three occur; the Fed Reserve Chair Janet Yellen’s comments later this morning are less dovish, if tomorrow’s NFP number surprises to the upside and if UK Services PMI has a big miss. Support may target the 50-day SMA at 1.6880, followed by the 100-day SMA at 1.6774.
The trade: Buy GBP/USD at 1.7100 with a stop loss at 1.7050 and a take profit at 1.7290. The Risk/Reward Ratio is around 1:4.
Edward J. Moya
WorldWideMarkets Online Trading