Will the 200 Daily SMA Hold for GBP/USD?

Posted Tuesday, February 21, 2023 by
Skerdian Meta • 2 min read

Last week, GBP/USD resumed the decline that it started early this month, following the US CPI (consumer price index) numbers which showed that inflation remained high despite a minimal cool-off last month. This confirmed the US Federal Reserve’s reversing into more aggressive rhetoric earlier this year, so this pair started to reverse and fell to 1.1915, where it found resistance at the 200 SMA (purple) in the daily chart.

GBP/USD Daily Chart – The 200 SMA Holds as Support for Now

Has the 200 SMA turned from resistance into support?

On Friday we saw a back-off toff that moving average, although that was due to the USD retreating after the bullish momentum since early February. Yesterday the price action was very slow as North America was on a bank holiday, while today we had the PMI services and manufacturing numbers from the UK, to be followed later by the same reports from the US. These reports are important in the US because it will confirm or deny an economic rebound in the US, but the data from the UK is important too.

UK Services and Manufacturing PMI from S&P Global – 21 February 2023

  • February flash services PMI 53.3 points vs 49.2 expected
  • January services were 48.7 points
  • Manufacturing PMI 49.2 points vs 47.5 expected
  • Prior 47.0 points
  • Composite PMI 53.0 points vs 49.0 expected
  • Prior 48.5 points

That’s a big beat on estimates with both manufacturing and services activity improving markedly to seven and eight month highs respectively. Overall, the UK economy is also seen moving back into growth territory, surprisingly, and that has seen GBP/USD jump up from 1.2000 to 1.2040 on the day.

“Much better than anticipated PMI data for February indicate encouraging resilience of the economy in the face of headwinds which include rising interest rates, the ongoing cost of living crisis, labour shortages and strikes.

“While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been buoyed by signs of inflation peaking, supply chains improving and recession risks easing. The stress created by last autumn’s mini budget is also continuing to work its way out of the financial system.

“However, while the data suggest that near-term recession odds have fallen considerably, elevated inflation pressures clearly remain a concern, especially in the service sector. As such, the resilience of the economy and the stickiness of the survey’s inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.”

GBP/USD Live Chart

GBP/USD
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