The British pound skyrocketed against its major trading partners after IHS Markit reported the August UK manufacturing PMI climbed to a 10-month high at 53.3, a strong beat from the 49.0 analyst forecast and the revised July reading of 48.3.
The PMI report highlighted that August saw solid rebounds in the trends in UK manufacturing output and incoming new orders. Companies reported solid inflows of new work from both domestic and export sources, the latter aided by the sterling exchange rate. Employment rose for the first time in the year-to-date. At 53.3 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI) recovered sharply from the 41-month low of 48.3 posted in July following the EU referendum.
Price action on the GBP/USD daily chart showed the key respect of the 50-day SMA before the PMI beat. Price rallied over 150 pips to the 1.3317 high before settling back towards the 1.3270 region. Investors are now eagerly awaiting Friday’s non-farm payrolls report. If we see a strong beat of the 180,000 figure, we could see the dollar appreciate significantly across the board. Leading indicators coming into the report are mixed. While ADP remained strong with a 177K print and continue claims declined, Challenger job cuts printed at 32.2K, University of Michigan Sentiment fell and weekly jobless claims increased.
If the cable rally continues following the US employment report, we could now see major resistance from the 1.3550 to 1.3805 zone. If we see that area taken out, price may not find major resistance until the 1.3900 region.
If the bearish trend resumes, we could see sterling target the psychological 1.30 level again. If bearish momentum accelerates, Major support will come from the psychological 1.2800 level.
The trade: Sell GBP/USD at 1.3350 with a stop loss at 1.3400 and a take profit at 1.3150. The Risk/Reward Ratio is 1:4