GBP/USD to Test Buyers at $1.1150 Ahead of the Government’s Mini Budget
However, later today, prelim private sector PMIs for September will draw plenty of interest. Following Thursday’s Bank of England rate hike, the markets will be looking for numbers that could force the Monetary Policy Committee into a 75-basis point rate hike in November.
The focus will likely be on price pressures, employment, wage growth, and demand. While the services sector PMI tends to have the most influence, a deeper contraction in manufacturing sector activity would test Pound support.
Economists have forecast the services PMI to fall from 50.9 to 50.0 and the manufacturing PMI to rise from 47.3 to 47.5. PMIs below 50 indicate a sector contraction.
From the Bank of England, there are no Monetary Policy Committee member speeches to influence. However, the UK mini budget will provide the Pound with direction. The UK government is looking to give consumers greater spending power, which may push inflation higher over the medium term and counter the BoE’s efforts to curb inflation.
The markets could price in a more hawkish BoE policy outlook in the event of substantial government support.
GBP/USD Price Action
At the time of writing, the Pound was down 0.59% to $1.11864. A mixed start to the day saw the Pound rise to an early high of $1.12736 before sliding to a low of $1.11688.
The Pound fell through the First Major Support Level (S1) at $1.1188.
The Pound needs to move through S1 and the $1.1276 pivot to target the First Major Resistance Level (R1) at $1.1341 and the Thursday high of $1.13645. Today’s private sector PMIs and market risk sentiment will be the key drivers ahead of the mini budget.
In the case of an extended rally, the GBP/USD would likely take a run at $1.14 but fall short of the Second Major Resistance Level (R2) at $1.1429. The Third Major Resistance Level (R3) sits at $1.1582.
Failure to move through S1 and the pivot would see the Pound test the Second Major Support Level (S2) at $1.1123. In the case of an extended sell-off, the Pound would test support at $1.1100.
The Third Major Support Level (S3) sits at $1.0970.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.13938.
The 50-day slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals. A GBP/USD move through R1 ($1.1341) would give the bulls a run at the 50-day EMA ($1.13938). However, failure to move through the 50-day EMA would leave the Pound under pressure.
The US Session
It is a busier day ahead on the US economic calendar. US prelim private sector PMIs numbers for September are due. Expect the services PMI to have the most influence on the dollar and risk sentiment in general.
With economists forecasting an increase from 43.7 to 45.0, the sector will likely continue to contract, which could drive a flight to safety.
Away from the numbers, FOMC member chatter would influence following Wednesday’s hawkish policy move. With the Dollar Spot Index now sitting around the 111 level, risk aversion could send the DXY on a path towards 115.