GBP/USD Forecast: Obsessed with equities, Eyes UK Services PMI

The GBP/USD pair traveled from the intraday high of 1.5325 to a low of 1.5264, before recovering slightly to close at 1.5292 levels on Wednesday. A slight upbeat UK construction PMI was ignored by the investors, who remained focused on the equity markets. So far this week, we have had a weak UK manufacturing PMI report, followed by a slightly upbeat construction PMI report. The focus today would be on the service sector PMI. The number is the most important among the three given it forms a larger part of the UK economy.

Slight uptick in UK services PMI expected

The GBP/USD pair has suffered losses for 7 consecutive sessions. The 500-pip loss has left the pair oversold on the intraday charts. Consequently, a slight uptick in the UK services PMI as widely expected could trigger a technical correction. Again, the details of the report could reveal the Sterling exchange rate is having a negative effect on the inflow of new work. In case, the PMI prints lower than expected, the already weak sentiment on GBP could worsen and push the pair down to 1.5248 (50% of Apr-Jun rally).

Apart from the UK PMI, the markets would remain focused on the sentiment in the equity markets. A sharp risk aversion or a strong risk-on rally could easily overshadow PMI figure. Moreover, risk-on rally in equities is likely to bode well for the GBP/USD pair, since it is perceived as a green signal for a rate hike in the US and UK and vice versa. Ahead in the day, the markets would watch out for employment component of the US ISM non-manufacturing figure.

Technicals – Strong resistance at 1.5360

Sterling’s spinning bottom formation on the daily chart indicates the downside momentum could have stalled and the pair may witness a technical correction before resuming the downtrend. However, gains are likely to be capped at 1.5360; which is the 200-DMA level, 76.4% expansion level and lower end of the expanding triangle. Consequently, fresh offers are expected around 1.5360. A rejection at 1.5360 would reinforce bears and push the spot well below 1.5248 (50% of Apr-June rally).

EUR/USD Analysis: Falling channel on hourly ahead of EU PMI and ECB

The EUR erased most of its early gains on Wednesday after stability in the equity markets bolstered expectations for an upcoming US rate hike. The pair remained focused on equity markets; rising and falling along with the major European and US equity indices. The weaker-than-expected US ADP employment report released on Wednesday was largely ignored by the FX markets.

Focus on ECB

The recent bout of risk aversion has highlighted the fact that the EUR is increasingly used as a funding currency and stands to gain on carry unwind. Furthermore, the CNY devaluation is also a cause of concern. Both factors could lead to a rise in imported inflation and also weigh over the exports. Consequently, markets expect Draghi to jawbone the EUR. However, the core inflation has stayed resilient. The latest PMI reports have highlighted a strong inflow of new work from abroad due to weaker EUR. Hence, there is no urgent need to panic and thus, Draghi is likely to state nothing more than the readiness to do more if required. The ECB could turn out to be a non-event for the markets.

Meanwhile, the services PMI across the Eurozone and especially in Germany is likely to show improvement in the activity. However, markets are likely to remain focused on the movement in the equities, with upside in the EUR/USD slightly restricted due to dovish expectations from the ECB.

Technical – awaits break from Falling Channel

Euro, currently trading at 1.1226, is moving in a falling channel seen on the hourly chart. The symmetrical triangle was breached on the downside on Wednesday, which led to a daily closing below 1.1236 (38.2% of Mar-Aug rally). A break above 1.1245 (falling channel resistance) could see the spot re-test 1.1280 levels. On the downside, the spot could find support around 1.1170 (falling channel support).