GBP/USD Daily Forecast – U.S. Dollar Continues Its Attempts To Move Higher

All Eyes On Manufacturing PMI Data

GBP/USD tries to consolidate near 1.2400 after the major upside move which took the pair from 1.1400 to almost 1.2500. Yesterday, the U.S. dollar made an attempt to gain ground against the British pound but this attempt was unsuccessful.

The U.S. Dollar Index tried to settle above the psychologically important 100 level but showed weakness following a better than expected Chicago PMI release and Donald Trump’s tweet about a potential $2 trillion infrastructure bill.

Today, market participants will be watching Manufacturing PMI data for both U.S. and UK. In both countries, Manufacturing PMI is expected to show contraction. However, the size of this contraction remains the key unknown factor.

So far, manufacturing has taken a lesser hit than services which got a heavy blow from coronavirus-related measures. However, the situation in the manufacturing segment will likely continue to deteriorate.

While I do not expect that Manufacturing PMI will show horrific numbers like the Services PMI, traders and investors should prepare themselves for additional portion of disappointing data.

The key question for near-term GBP/USD dynamics is whether the U.S. dollar can maintain its status as the safe haven asset of last resort amidst the worsening coronavirus situation in the U.S.

According to data from Johns Hopkins University, there are more than 189,000 coronavirus cases in the U.S. President Donald Trump has already warned that the upcoming two weeks would be very painful. This is going to be a true test for the U.S. dollar.

Technical Analysis

GBP/USD continues its attempts to move lower but stays in the current upside channel. The major support for the pair is located near the 20 EMA at 1.2270. If this support is breached, the current upside trend will come to an end, and GBP/USD will be able to start another downside move.

On the upside, the pair met resistance at 1.2480, below the 50 EMA at 1.2520. The range between 1.2480 and 1.2520 will be a material obstacle on the way up. At this point, it looks like the pair will need additional catalysts (like a broad-based U.S. dollar weakness) to get through this resistance.

In my opinion, GBP/USD dynamics will heavily depend on whether the markets stay in the risk-on mode or turn to selling of riskier assets due to coronavirus data.