GBP to USD Forecasts: Bears Eye $1.2350 on US ISM Non-Manufacturing PMI

It is a relatively quiet Monday session for the GBP/USD. Finalized Services and Composite PMI numbers for May will draw interest. We expect revisions to the Services PMI to move the dial.

However, with economic indicators on the light side, market risk sentiment will influence ahead of the US session. The market bets are on a Bank of England interest rate hike and for a Fed pause in June. While today’s UK economic indicators will unlikely force the BoE to reconsider, investors should track Bank of England chatter throughout the session.

No Monetary Policy Committee members are on the calendar to speak today, leaving commentary with the media to influence.

Earlier today, PMI numbers from China set the tone. The Caixin Services PMI increased from 56.4 to 57.1, with the Caixin Composite PMI up from 52.9 to 55.6 in May. This morning’s PMI numbers were in stark contrast to the NBS PMI numbers that painted a grim picture of the Chinese economy.

GBP to USD Price Action

This morning, the GBP/USD was down 0.12% to $1.24327. A mixed start to the day saw the GBP/USD rise to an early high of $1.24496 before falling to a low of $1.24261.

Technical Indicators

Resistance & Support Levels

The Pound needs to move through the $1.2478 pivot to target the First Major Resistance Level (R1) at $1.2514 and the Friday high of $1.25446. A return to $1.25 would signal an extended breakout session. However, the Pound would need economic indicators to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2581. The Third Major Resistance Level sits at $1.2684.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2411 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2350. The Second Major Support Level (S2) at $1.2375 should limit the downside. The Third Major Support Level (S3) sits at $1.2272.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The GBP/USD sat above the 50-day EMA, currently at $1.24309. The 50-day EMA eased back from the 200-day EMA, with the 100-day EMA closing in on the 200-day EMA, delivering bearish signals.

A move through the 200-day ($1.24365) and 100-day ($1.24392) EMAs would support a breakout from R1 ($1.2514) to give the bulls a run at R2 ($1.2581). However, a fall through the 50-day EMA ($1.24309) would bring S1 ($1.2411) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Following the market-friendly US Jobs Report, US economic indicators will also provide direction. The all-important ISM Non-Manufacturing PMI for May will be the main report of the day. Investors need to look beyond the headline figure, with employment, new orders, and price sub-components also likely to impact sentiment toward the Fed policy outlook.

Other stats include finalized S&P Global Composite and Services PMIs and factory orders. However, the stats should have a limited impact on the Fed.

Beyond the economic indicators, Fed commentary will need consideration. According to the CME FedWatch Tool, the probability of a June interest rate hike fell from 25.3% to 23.0% this morning. One week earlier, the chance of a 25-basis point hike stood at 64.2%.

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