Preparing to Go Short on the GBP Soon, As Manufacturing and Services Remain in Recession
GBP/USD has been declining since July and fell to its lowest point since March as it tumbled to 1.2040 early in October, although it recovered for over a week, peaking at 1.2340 the following week. But, the release of the US consumer inflation report gave a boost to the USD and reversed this pair lower, sending it dipping just below 1.21 this week, while the higher DCPI inflation in the UK didn’t help the GBP much.
Moving averages, especially the 50 SMA (yellow) have been acting as resistance throughout this week, capping the retraces higher, which shows that the selling pressure is strong. The surge in US treasury yields due to geopolitical tensions has been helping the USD and pushing this pair down as well.
But, yesterday we saw a reversal down in US bond yields after the 10-year Treasury yields climbed above 5.00%, as risk sentiment improved. As a result, the USD started retreating during the US session while GBP/USD surged around 100 pips higher. But the economic data continues to show deterioration in the UK economy, so we are getting ready to go short on this pair. Today we had the employment report from the UK, as well as the Manufacturing and Services PMI data, which were quite weak again, as shown below.
UK Services and Manufacturing PMI Reports
- October flash services PMI 49.2 points vs 49.3 expected
- September services PMI was 49.3 points
- Manufacturing PMI 45.2 points vs 44.7 expected
- Prior manufacturing PMI was 44.3 points
- Composite PMI 48.6 points vs 48.7 expected
- Prior composite PMI was 48.5 points
The headline reading is a 9-month low and it points to further moderation in overall activity in the services sector. With both manufacturing and services sectors contracting, it indicates a sluggish start to Q4 as the UK economy sits on the brink of a recession. S&P Global notes that:
“The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output.
GBP/USD Live Chart
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