GBP/USD Forecast: Will UK manufacturing PMI trigger correction

The GBP/USD pair rose to an intraday high of 1.5214 before fresh offers pushed it back below 1.52 levels after the US ADP report showed the private sector in the US added 200K jobs compared to the expectation of 190K additions. Once again, the positive ADP report increased the possibility of an upbeat NFP report leading to USD strength. The cable eventually fell to a its lowest - 1.5107 – since May 5.

Focus on UK PMI – New export orders

All eyes are now on the UK manufacturing PMI (expected 51.3, previous 51.5) report. The cable has declined for 10 consecutive session and only an upbeat UK PMI report could lead to a meaningful technical correction today. Once again, the devil lies in the detail. Apart from the headline figure, the trading community would be interested to know if the new export orders continued to decline in September on the back of Sterling exchange rate.

For almost 6 months now, the PMI reports have been highlighted the disinflationary impact of the strong GBP. New export orders have dropped each month as well. Hence, it is hardly surprising if the BOE turns dovish, especially since the China slowdown and financial market turmoil have gathered pace off late. Furthermore, dovish Fed also means the BOE would delay its own rate hike.

Consequently, a weak PMI figure could spell disaster for Pound, sending it lower to 1.5 levels ahead of the Non-farm payrolls report due tomorrow. On the other hand, a much needed technical correction could be seen in case the PMI beats expectations. A corrective rally to 1.52-1.5248 could happen quickly.

Technicals – Downward channel on hourly chart

On the hourly chart, the spot is trading in the downward channel with indicators showing oversold conditions. Sterling’s ten day decline to a low of 1.5107 followed by a minor recovery in Asia today ahead of the UK PMI indicates the pair could re-test the channel resistance currently seen at 1.5165. Only an hourly close above 1.5165 would open doors for a rise towards 1.5248 (50% of Apr-Jun rally). On the downside, fresh offers are seen below the channel support currently seen at 1.51 levels. Break below 1.51 could lead to sell-off to 1.50 handle.

EUR/USD Analysis: Weak PMI could weigh over the EUR

The EUR/USD pair dropped to its 200-DMa on Wednesday and extended losses today in Asia today to 1.1150 levels. The common currency came under pressure after the latest data from the Eurostat showed the 17-nation currency bloc fell back into deflation in September. Meanwhile, a better-than-expected US ADP number added to the USD’s strength. The rating agency S&P was also on the wires stating that the ECB could extend its QE program beyond September 2016.

Focus on EU PMIs

The fate of the EUR heading into the US session today depends on the quality of the EU PMI reports. A weaker print would add to speculation that the ECB would bolster its QE program and/or extend it beyond September 2016. Moreover, the inverse relationship between stocks and EUR may not come into play due to increased speculation of more monetary easing from the ECB and the overnight rally in the US and Asian stocks. Ahead in the US session, the focus would be on the US ISM manufacturing figure – Employment index. The EUR/USD pair could drop to 1.11-1.1080 levels in case of a weaker EU PMI report.

Technicals – Eyes 1.11

Euro’s failure to sustain above 1.1236 (38.2% of Mar-Aug rally) followed by a drop below its 200-MA located yesterday at 1.1177 indicated the pair is likely to take out its support at 1.1141 (100-DMA) and fall to 1.11 – 1.1088 (50% of Mar – Aug rally). On the higher side, only a break above 200-DMA could open doors for a re-test of 1.1236 levels.