GBP/USD Daily Forecast – UK Manufacturing Falls at Fastest Rate in 7 Years

GBP/USD Remains Volatile Post UK Election

GBP/USD was steadily bid at the weekly open but fell under pressure as European traders got to their desks, giving up a bulk of the day’s gain. The pair reached a high of 1.3422 and has retreated about 100 pips from there since.

Manufacturing and services PMI data fell short of expectations in the UK and could be hinting that the economy contracted in the last quarter of the year. The shortfall is not entirely surprising as manufacturing has generally been weak across the globe. The shortfall in the services sector, however, does cause some concern with the index holding in contraction territory for December.

GBP/USD is still trading with a bit more volatility than usual as traders continue to reprice the exchange rate following the UK election. The pair topped just above the 1.3500 handle last week and has been pulling back since.

The pound to dollar exchange rate has been rallying since early September on the speculation that PM Johnson will get a Brexit deal through. It appears that much of the election result was priced in which may limit the near-term upside potential for the currency pair.

Technical Analysis

At the same time, there is some fairly import support within proximity. A horizontal level near the 1.3300 price point has been a significant one on a weekly chart. It held the exchange rate lower in the second half of 2018 and once again in the first quarter of this year.

Buyers might look to step in at the level, although the 4-hour chart signals downward momentum considering the bearish engulfing candle printed just after the European open today.

The exchange rate has erased about half of the gains that came as a result of the election so far. This has taken somewhat taken the steam out of the bullish rally, although optimism of a Brexit deal by the end of January stands to keep the pair underpinned.

Bottom Line

• GBP/USD is still trading more volatile than usual in follow through on last weeks election
• Major support for the pair is found nearby at the 1.3300 level. This price point offered a hurdle for just over a year prior to the bullish break last week.