GBP/USD traded somewhat lower during the European morning

GBP/USD

• The dollar traded unchanged or lower against most of its G10 counterparts during the European morning Wednesday, ahead of the US ADP report. It was lower against GBP, NOK, NZD and AUD, in that order, while it was virtually unchanged against EUR, SEK, JPY and CAD. The greenback was higher only against CHF.

• The British pound weakened a bit after the country’s service-sector PMI disappointed and decreased more than expected in July. Nevertheless, investors overlooked the soft figure and the pound strengthened immediately as market focus remains on Thursday. The Bank of England will release its rate decision, the quarterly Inflation Report and the minutes of the meeting, all at the same time. The first reaction will most likely be on the number of dissenting votes, if any, and later on the new economic forecasts. Market expectations and ours are to see once again two split votes from the most hawkish MPC members, Weale and McCafferty, and if we see another member joining the dissenters this could be noticeably GBP-bullish. Following the tidal wave of the votes, we will shift our focus on the new economic forecasts for signs of further GBP support.

• GBP/USD traded somewhat lower during the European morning Wednesday, but hit support at 1.5525 (S1) and rebounded. Since there is no clear trending structure on the 4-hour chart, I would take the sidelines as far as the short-term picture is concerned. Although the rebound could extend higher for a while, I prefer to wait for a break above the well-tested resistance zone of 1.5670 (R2) before I get more confident on the upside. Something like that would confirm a forthcoming higher high and could initially target the 1.5735 (R3) resistance line, defined by the peak of the 1st of July. The RSI has been oscillating around its 50 line, while the MACD stands fractionally below zero pointing east. These indicators corroborate my view to stay flat, at least for now. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What is more, Cable is still trading above the 80-day exponential moving average. These technical signs make me believe that the overall picture remains somewhat positive and that there is still the likelihood for the rate to trade higher.

• Support: 1.5525 (S1), 1.5465 (S2), 1.5410 (S3)

• Resistance: 1.5635 (R1), 1.5670 (R2), 1.5735 (R3)