The best reading on activity growth for ten months helped put a little pause in the British pound’s slide. This morning, Markit/CIPS UK Services PMI printed at 60.5, much better than the forecast of 58.6 and the best reading since last November. The positive beat however was accompanied with a fall to a 15-month low on Business Confidence. Competitive pressures and concerns on business pipelines neutralized the market reaction from having a stronger rebound. With Business Confidence lagging, we may not see an improvement on wage growth forecasts and that should keep the Bank of England steady.
GBP/USD stabilized this morning at 1.6444, but has not provided much of a rally. Currently on the daily chart, you can see that since the breakdown below the key 1.70 level and 3 Simple Moving Averages, the bearish bias has firmly been in place. The recent fall below the 1.6500 opens the door for further weakness to target 1.6300 which is just above the 38.2% Fibonacci retracement level (1.6282) of the 1.4812 to 1.7190 move. This area remains where we might find value in a bullish bounce.
The trade: Sell GBP/USD at 1.6523 with a stop loss at 1.6573 and a take profit at 1.6323. The Risk/Reward Ratio is around 1:4.
Edward J. Moya