The GBP/USD pair rose to an intraday high of 1.5244 levels in the European session before turning lower on the back of a disappointing UK services PMI report. The seasonally adjusted Markit/CIPS UK Services Business Activity Index fell to to 53.3, from August’s 55.6, indicating the weakest rate of growth since April 2013. The rate of expansion in new business slowed for the fifth time in six months in September.
Flurry of weak data ahead of BOE minutes
The Bank of England rate decision on Thursday will be immediately followed by the release of the minutes. Heading into the event, we have had a flurry of weak economic data out of the UK (at a time when the drop in the fed rate hike bets is pushing BOE away from its liftoff). The latest PMI reports show weaker manufacturing and service-sector activity.
Wednesday’s UK manufacturing and industrial production figure could also disappoint. The inflow of the new work (highlighted by PMI) was weak in July and August, while exports too have shown a sequential drop. Consequently, the spot could very well be trading around 1.5 handle before Thursday’s BOE rate decision.
Technicals – Bearish daily close opens doors for sub-1.51
Sterling’s failure to sustain above the rounding bottom neckline on the 4-hour chart on Monday, followed by a daily close below 1.5163 (Sep 4 low) indicates the pair is likely to extend the drop to 1.581 levels today. A minor uptick could run into offers around 1.5185 (23.6% of Jul 14-Apr 15 downtrend). On the higher side, only an hourly close above 1.5244 could open doors for 1.5330 (July 8 low).
EUR/USD Analysis: Pointing southwards to 1.11
The EUR/USD weakened on Monday, as disappointing service sector data from the Eurozone weighed over the EUR. Markit's services PMI for the EUrozone fell to 53.7 last month from 54.0 in August. The German service sector experienced slower growth as well. The pair clocked a high of 1.1289 in the European session, before falling back to 1.1220 and extending weakness in the NY session to 1.1173 levels.
Focus on risk sentiment
The EUR and other funding currencies remain at the mercy of the overall market sentiment today. The Asian stocks advanced for the fifth straight day. In case, the risk-on prevails in Europe and the US, the EUR could easily drop to 1.11 levels. Moreover, the common currency is also under pressure on rising expectations that ECB would increase its QE program in retaliation to the drop in the Fed and BOE rate hike bets. Consequently, the immediate prospects for an upside in the pair are very limited.
Technicals – Eyes set on 1.11
Euro’s repeated failures to rise above 1.13 since late September, despite weak US non-farm payrolls indicates the single currency is likely to ratchet lower to 1.11 levels today. A break below 1.11 could push the pair to 1.10505-1.1033 (red line in the chart). On the higher side, only a break above 1214 could see the pair make another attempt to take out the offers in the range of 1.1280-1.13.
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