Advertisement
Advertisement

GBP/USD Eyes a Return to sub-$1.10 Ahead of the Manufacturing PMIs

By:
Bob Mason
Published: Oct 3, 2022, 05:03 UTC

Following the Q2 GDP numbers on Friday, the focus shifts to manufacturing sector activity. Bank of England chatter will also influence the GBP/USD.

GBP/USD under scrutiny - FX Empire.

In this article:

It is a relatively quiet day for the GBP/USD. From the economic calendar, the finalized UK manufacturing sector will be in the spotlight later this morning. Following the Q2 GDP numbers on Friday, the markets will be looking for the affirmation of improving sector conditions to support the Pound.

In Q2, manufacturing sector output declined by 1.1%. In September, prelim figures showed the PMI increase from 47.3 to 48.5. While revisions to the headline figure will draw plenty of interest, the devil will likely be in the details.

The areas of focus will be input (including wage growth) and output cost pressures, new orders, and supplier performance.

Bank of England Monetary Policy member speeches will also provide direction for the Pound. MPC member Catherine Mann is a panelist at the CD Howe Institute’s Monetary Policy Initiative (1900 BST).

While the GBP/USD has bounced back from its all-time low of $1.03565, MPC members will need to deliver hawkish speeches to support the expectation of more aggressive policy moves to counter the UK Government’s mini-budget.

GBP/USD Price Action

At the time of writing, the Pound was down 0.52% to $1.10980. A choppy start to the day saw the GBP/USD pair rose to an early high of $1.11942 before falling to a low of $1.10855.

GBP/USD hits reverse.
GBPUSD 031022 Daily Chart

Technical Indicators

The Pound needs to move through the $1.1138 pivot to target the First Major Resistance Level (R1) at $1.1252. Today’s manufacturing PMI needs to be Pound friendly to support a breakout from the morning high of $1.11942.

In the case of another extended rally, the GBP/USD would likely test resistance at $1.13 and the Second Major Resistance Level (R2) at $1.1348. The Third Major Resistance Level (R3) sits at $1.1558.

The market focal point remains the Bank of England policy response to the UK Government’s fiscal measures.

Failure to move through the pivot would see the Pound test the First Major Support Level (S1) at $1.1042. In the case of another extended sell-off, the bears would likely take a run at the Second Major Support Level (S2) at $1.0928.

The Third Major Support Level (S3) sits at $1.0718.

GBP/USD support levels in play below the pivot.
GBPUSD 031022 1 Hour Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 100-day EMA, currently at $1.11910.

The 50-day narrowed to the 100-day EMA, while the 100-day EMA eased back from the 200-day EMA, delivering mixed signals. A GBP/USD move through the 100-day EMA ($1.11910) and R1 ($1.1252) would give the bulls a look at R2 ($1.1348). The 200-day EMA sits at $1.14204.

However, a fall through the 50-day EMA ($1.10381) would give the bears a run at S1 ($1.1042).

EMAs bearish.
GBPUSD 031022 4-Hourly Chart

The US Session

It is a busier day ahead on the US economic calendar. The US manufacturing sector is also in the spotlight, with the Markit and ISM survey PMIs due. We expect the ISM Manufacturing PMI to have more influence.

Economists forecast the ISM Manufacturing PMI to fall from 52.8 to 52.2 in September.

FOMC member commentary will also draw interest, with members Barkin and Bostic speaking today. Last week’s Core PCE Price Index showed a pickup in inflationary pressure. Any talk of percentage point rate hikes would fuel a dollar breakout.

The probability of a 75-basis point November hike sits at 53.0% versus 47.0% for a 50-basis point move. (Based on CME Group numbers).

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

Did you find this article useful?

Advertisement