GBP/USD Daily Forecast – UK Manufacturing Takes Turn for Worse

No Immediate Recovery in Sight for Manufacturing

The latest UK manufacturing PMI declined to 47.5 as the contraction in manufacturing accelerated. Duncan Brock at the Chartered Institute of Procurement & Supply commented that there are no signs of an immediate recovery in sight, referencing production levels which have fallen at their fastest pace since 2012.

Sterling has eased back from its recent highs although GBP/USD appears to be weighed by a recovery in the greenback. The dollar index (DXY) has been under pressure as of late and has posted six consecutive days of losses. The pair ended 2018 at levels not seen in six months. DXY is recovering in the early day, however, it might be too soon to assess if the recovery will turn into anything meaningful.

The latest US manufacturing figures will be released during the North American session. Analysts are expecting a tick lower in the PMI data although the risk tends to be to the downside as is often the case when European and UK data comes in soft.

Technical Analysis

GBP/USD has recovered nearly 3% from its low printed on December 23. The recent upward momentum stands to keep the pair bid on dips over the near-term.

The recovery in the pair was met with resistance from a trendline that connects the October lows with lows posted in November. This trendline broke down shortly after the UK election. This trendline remains upside resistance for the pair in the week ahead, with further resistance coming in at the 1.3300 price point.

The first level of support to the downside resides at 1.3181. This is a level that offered some resistance in early December. Beyond that, a stronger support level comes in at 1.3145.

While the recent upward momentum has been strong for GBP/USD, the pair is not showing any meaningful signs of reversal on the larger time frames. Technical traders will tend to continue focusing on the weekly bearish candle printed the week after the UK election.

Bottom Line

• GBP/USD has eased from highs after meeting resistance from a previously broken trendline.
• The latest US manufacturing data will be reported later in the day. The data is likely to cause a volatile reaction in the market.