GBP/USD Daily Forecast – 200 DMA Blocks Second Rally Attempt

A broadly weaker dollar dominated the major currencies this week and led to a rally in GBP/USD back towards the upper end of a range that has been playing out for about a month.

Similar to the last bullish attempt in the middle of April, sellers defended the 200-day moving average, and the pound to dollar exchange rate has eased back somewhat since.

The UK purchasing managers’ index for the manufacturing sector declined to multi-decade lows in April, attributed to the Coronavirus crisis. IHS Markit reported that supplier delays are at their highest since the PMI reporting began. It further went on the say that inflationary pressures are currently lacking although they could rise down the road on persistent shortages on items such as food.

Later in the North American session, PMI data for the US manufacturing sector will be released. Both the ISM and Markit versions of the purchasing managers’ index are expected to have declined sharply in April.

Technical Analysis

The GBP/USD exchange rate did not show much of a reaction to the dismal PMI data from the UK. In this regard, the US data later in the day may also be met with a subdued reaction in the markets.

The focus in the session ahead will be on the dollar as the trade-weighted index (DXY) is testing lows from April. A break below last months low could lead to an acceleration in downwards momentum which stands to drive GBP/USD above it’s 200-day moving average.

While below the 200 DMA, support is found at 1.2486 in the session ahead. The same level held the exchange rate lower in late March as well as earlier this week.

While it seems unlikely that the pair breaks higher going into the end of the week, a break above 1.2648 would be significant and stands to accompany an acceleration in upward momentum.

Bottom Line

• The 200-day moving average is once again proving to be a hurdle for GBP/USD.
• The US will release manufacturing PMI figures during the North American session today.