GBPUSD bounced off the resistance at the 1.2650 minor psychological level and broke below the near-term consolidation support at 1.2400, confirming that sellers are taking over. Price is now making its way towards the long-term support at the 1.2100 major psychological level.
The 100 SMA is above the longer-term 200 SMA on the 4-hour time frame but a downward crossover seems to be looming, indicating that bearish momentum could pick up. In that case, a break below the range support could be possible, taking GBPUSD lower by 550 pips or the same height as the chart formation.
Stochastic is already indicating oversold conditions so the odds could turn in the bulls’ favor at some point, although the oscillator has yet to move higher to reflect a return in buying momentum. If that happens, a pullback to the nearby area of interest at 1.2400 could take place or a bounce back to the resistance at 1.2650 could be seen.
The pound is under heavy selling pressure as the Brexit Bill is encountering a lot of friction in the House of Lords. Amendments might need to be made, particularly when it comes to the status of UK citizens in EU nations, so this could mean a delay in PM May’s Article 50 timeline and more uncertainty for the economy.
As for economic data, UK manufacturing PMI turned out weaker than expected by falling from 55.7 to 54.6 versus the estimated rebound. The construction PMI is due today and no change to the earlier 52.2 reading is eyed, although another downbeat result could confirm that Brexit jitters are affecting business conditions. Services PMI is due on Friday and this might carry more weight.
Dollar demand seems to have returned even after Trump’s speech was a bit of disappointment without any tax reform details. Still, investors took comfort in the fact that he sounded more presidential and less divisive. Also, more FOMC speeches highlighting the need to hike in their upcoming meeting this month is keeping the dollar supported. Data has been mostly stronger than expected, with the ISM manufacturing PMI up from 56.0 to 57.7.
By Kate Curtis from Trader’s Way