GBP/USD Little Changed As Investors Brush Off Weak PMI Data

Investors brushed off record declines in PMI data for both the services and manufacturing sectors and the British pound held in a relatively tight range in early European trading.

The PMI data reached lows never seen before in the 22-year history of the report. The data is consistent with a 7% decline in quarterly GDP.

PMI data from the US will be released next along with the weekly jobless claims report and new home sales.

Over the past month, the US has lost nearly 22 million jobs. Today’s report is expected to reflect an additional 4.3 million workers to have filed to unemployment benefits.

Similar to the European and UK PMI data released earlier today, the US PMI figures are also expected to show a further contraction.

Despite the lack of volatility in GBP/USD, the US dollar index has made small gains in the early day and trades near weekly highs. However, the US PMI report is likely to determine the dollar’s fate for the session ahead.

Technical Analysis

The downside momentum in GBP/USD has subsided since the European close on Tuesday and the pair has been recovering higher, albeit with a lack of momentum.

A bearish trend channel has been encompassing the decline and the pair was last seen testing the upper bound of the channel.

A bullish breach of the channel might signal that the recent correction was a bull flag which stands to encourage buyers. However, there is a further hurdle at 1.2439 that is considered important as it offered support last week.

While the pair holds within the channel, the near-term bias remains to the downside. Support for the pair is seen at the April low of 1.2166.

The US dollar index (DXY) has been steadily trending higher this week and is nearing the April high. A break above it would lead to a print of a higher high and higher low from the bottom in late March. This could lead to an acceleration in upside momentum for the dollar.

Bottom Line

• GBP/USD volatility has declined significantly over the last two sessions.
• A declining trend channel is containing price action. While within the channel, a further decline toward the April low appears plausible.