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Jignesh Davda

GBP/USD has had an unusually strong correlation with the equity markets as of late but is struggling to gain on a sharp advance in the global stock markets to start the new week.

The UK FTSE 100 is up nearly 2% shortly after the European open while the S&P 500 has advanced about 1.5% in pre-market trading as investors brush off concerns over the Coronavirus in favor of improving economic data.

PMI figures for UK construction output rose sharply in June to 55.3, not only exceeding levels seen ahead of the virus outbreak but marking a fresh two-year high. The biggest gain for the index derived from house building which saw the sharpest rise in almost five years.

Similar economic data will be released from the US later today as Markit is scheduled to report its final figures for the June services PMI and the ISM is to report PMI figures for the non-manufacturing sector.

The week ahead might be a quiet one as the economic calendar is relatively light. The highlight will likely be Thursday’s unemployment claims from the US which will offer a close to real-time view of how the labor market is progressing.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD showed strong upward momentum early last week but the momentum fizzled out after approaching the 1.2500 handle.

The pair may continue to range below this level to work off overbought conditions from the earlier rise.

Strength in the equity markets has not helped the pair much and if stocks correct after the US open it could weigh on the currency pair.

Over the near-term, a break below lows posted in the second half of last week near 1.2450 could signal a broader correction.

From a slightly broader perspective, strong support for the pair is seen at 1.2343 while a break above 1.2500 may signal a move towards the 1.2650 area.


Bottom Line

  • GBP/USD rallies have been capped by the 1.2500 level in early trading despite a blowout PMI report from the UK.
  • Equity markets are starting the week out on a strong note with the S&P 500 set to open about 1.5% higher.
  • The economic calendar this week is light which may lead to range-bound trading.

For a look at all of today’s economic events, check out our economic calendar.

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