GBP to USD Forecasts: Return to $1.21 in the Hands of the Services PMI

It is a relatively quiet day ahead for the GBP/USD. The UK private sector will be in the spotlight, with prelim February private sector PMIs in focus.

While the manufacturing PMI will draw interest, the services PMI and sub-components of the Composite will likely have more influence on sentiment toward the UK economy and the GBP/USD. Economists forecast the UK services PMI to increase from 48.7 to 49.2 in February after falling from 49.9 to 48.7 in January.

With the BoE focused on inflation and wage growth, we expect the input and output price sub-components to draw plenty of interest, with new orders also material.

The markets should also consider Monetary Policy Committee member speeches. However, no MPC members are due to speak today, according to the BoE calendar, leaving commentary with the media to move the dial.

GBP/USD Price Action

At the time of writing, the GBP/USD was down 0.11% to $1.20211. The GBP/USD rose to an early high of $1.20433 before falling to a low of $1.20128.

Technical Indicators

The Pound needs to move through the $1.2035 pivot to target the First Major Resistance Level (R1) at $1.2056 and the Monday high of $1.20568. A return to $1.2050 would signal an extended breakout session. However, the Pound would need impressive PMI numbers and hawkish MPC member chatter to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2078 and resistance at $1.21. The Third Major Resistance Level sits at $1.2120.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2014 in play. However, barring a PMI-fueled sell-off, the GBP/USD should avoid sub-$1.1950. In the event of a fall through the second Major Support Level (S2) at $1.1993, the Third Major Support Level (S3) at $1.1950 should limit the downside.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.20641. The 50-day EMA fell back from the 200-day EMA, with the 100-day EMA pulling back the 200-day EMA. The signals were bearish.

A move through R1 ($1.2056) and the 50-day EMA ($1.20641) would give the bulls a run at R2 ($1.2078) and the 100-day ($1.21149). However, failure to move through the 50-day EMA ($1.20641) would leave the Major Support Levels in play.

The US Session

It is a relatively busy day on the US economic calendar, with prelim February private sector PMI numbers in the spotlight.

We saw a divergence between the Markit and ISM survey-based numbers in January. The more influential ISM Non-Manufacturing PMI rose from 49.2 to 55.2 versus a Markit survey-based PMI that rose from 44.7 to 46.8 to reflect a continued contraction in the services sector.

While manufacturing sector activity will draw interest, the Services PMI has a greater weighting. The service sector activity accounts for more than two-thirds of the US economy. Economists forecast the Services PMI to increase from 46.8 to 47.1.