Earlier in London, sterling weakened to the dollar after a report showed that UK services cooled in February. Markit Economics reported that the PMI index declined to 56.7 from 57.2 in January. This was the second miss this calendar year and provides limited concern that the British recovery is in danger.
GBP/USD weakness continued in New York after relatively strong data pushed the currency pair below the 1.5300 level. ADP February payrolls rose 212,000, slightly missing the forecast of 219,000 and ISM Non-Manufacturing Index posted a 56.9 reading for February, the highest reading of 2015.
Since both making a February high of 1.5551 and respecting the 100-day Simple Moving Average, price appears poised to resume its longer-term bearish trend. The rebound that started from the near-2 year low of 1.4950 is quickly evaporating and could immediately target the 50.0% Fibonacci retracement level at 1.5250.
While, the UK economy continues to strengthen, today’s miss is not likely erase expectations that the BOE will be one of the first central banks to tighten. That logic alone could limit major downside for the pair. Critical support will remain the 1.50 psychological level.
The trade: Sell GBP/USD 1.5275, with a stop loss at 1.5315 and take profit at 1.5195. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading