GBP/USD Price Forecast: Sub-$1.216 Brings Sub-$1.21 Support into Play

It is a relatively busy morning on the UK economic calendar for the Pound. Following the UK inflation figures for May, the market focus shifts to the all-important private sector PMIs for June.

Following BoE Chief Economist Huw Pill’s warning of the need for more aggressive rate hikes, an area of focus will be input and output price inflation.

Last week, Pill told Bloomberg TV,

“If we see greater evidence that the current high level of inflation is becoming embedded in pricing behavior by firms, in wage-setting behavior by firms and workers, then that will be the trigger for this more aggressive action.”

Prelim Private Sector PMI Figures for June Disappoint the Pound

In June, the manufacturing PMI fell from 54.6 to a 23-month low of 53.4. The services PMI held steady at 53.4, delivering GBP/USD support. Economists had forecast PMIs of 53.7 and 53.0, respectively.

As a result, the composite PMI was unchanged at 53.1 versus a forecasted 51.8.

According to the prelim survey,

• The services sector continued to outperform manufacturers who got hit with weaker demand and ongoing supply chain issues.
• New orders fell across the private sector, with the new order sub-index falling from 53.8 to 50.8.
• Manufacturers were hardest hit, with hesitancy and the impact of inflation on budgets weighing on demand.
• Staffing numbers were on the rise despite the gloomy mood. Difficulty in finding suitable candidates continued to deliver strong wage pressures.
• While input prices rose at a slightly slower pace than in May, the rate of inflation was the second-fastest since Jan-1998.
• Strong input prices led to a steep increase in average prices charged.

GBP/USD Price Action

At the time of writing, the Pound was down 0.63% to $1.21839.

A bearish morning saw the Pound slide to a low of $1.21699 before finding support.

The reversal saw the Pound briefly fall through the First Major Support Level at $1.2176.

Technical Indicators

The Pound will need to move through the $1.2245 pivot to target the First Major Resistance Level at $1.2330.

A pickup in market risk appetite would support a breakout from Wednesday’s high of $1.23145.

An extended rally would test the Second Major Resistance Level at $1.2399 and resistance at $1.24. The Third Major Resistance Level at $1.2553.

Failure to move through the pivot would leave the First Major Support Level at $1.2176 in play.

In the case of an extended sell-off, the Second Major Support Level at $1.2091 should limit the downside. The Third Major Support Level sits at $1.1937.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

At the time of writing, the Pound sat below the 50-day EMA, currently at $1.22664. The 50-day fell back from the 100-day EMA. The 100-day EMA eased back from the 200-day EMA: Pound negative.

A move back through the 50-day EMA to $1.23 would support a run at the 100-day EMA, currently at $1.23322, to bring $1.24 into play.

The Wednesday pullback from the 50-day EMA and this morning’s decline bring the June low of $1.19334 into play near-term.

The US Session

Later today, it is the second day of Fed Chair Powell’s testimony on Capitol Hill.

The markets will look out for any shift from Wednesday’s Q&A responses.

On the economic calendar, private sector PMIs for June are due out. The services PMI will draw the greatest interest, with sub-components including inflation, employment, and new business areas of interest.

Barring any material spike, the US jobless claims should have a muted impact on the GBP/USD pairing.