The GBP/USD pair witnessed a downside breakout from the week long range of 1.5667-1.5750 after the weaker-than-expected UK PMI manufacturing figure hit the wires. The pair hit an intraday low of 1.5588 in the North American session, before ending the session at 1.5603.
Strong GBP could eventually force the BOE to turn dovish
What was more important in the PMI report was the drop in the new export order due to the impact of a sterling exchange rate – primarily EUR/GBP. I have been posting this in morning report since last couple of months that the EUR/GBP exchange rate is having a negative impact on the export orders received by the UK firms. Given the BOE is concerned about the current account deficit, a sustained strength in the GBP against the EUR could force the BOE to adopt a dovish policy tilt.
As for today, the pair could trade in line with the overall market sentiment as the focus shifts from Greece to US on-farm payrolls. No major UK data is due for release. NPF is expected to show the US economy added 230K jobs in June.
On the technical charts, the pair suffered a bearish daily close below 1.5606 (23.6% Fib R of 1.4564-1.5928). At the moment, the pair is trading at 1.5611 with daily RSI bearish at 48 levels. The pair could test the immediate resistance 1.5638 (38.2% Fib of June rally). However, a downside breakout from the week long trading range is likely to bring in fresh offers, which could push the pair back below 1.5606. In such a case, the losses could be extended to 1.5549 (50% Fib R of June rally). On the higher side, only a break above 1.5667 would turn the short term view from bearish to consolidation.
EUR/USD Analysis: Drops below rising trend line support
The EUR/USD pair fell to as low as 1.1043 near New York close due to the release of upbeat US ADP employment data. During the European session, the pair clocked a high of 1.1171 on hopes of a new bail out programme for Greece. However, optimism quickly faded after German Chancellor Merkel once again rejected talks before the July 5 referendum. Similar comments came from Germany’s Schauble and the EUR chief Dijsselbloem. From the Euro’s point of view, the focus now shifts to the July 5 referendum.
Meanwhile, investors would also watch out for the US non-farm payrolls in June (exp 230K, prev 280K). A number between 200K-230K would not have much impact on the overall market positioning. However,a better-than-expected figure could trigger a fresh USD rally. The EU PPI and the ECB minutes could be overshadowed by fresh noise about the Greece situation.
On the daily charts, the pair breached the rising trend line support on Wednesday as it close at 1.1037. A fresh attempt has been made today to sustain above the trend line resistance 1.1.068-1.1070. However, with the bearish daily close and bearish RSI on the daily and intraday time frame, the pair is likely to run into offers anywhere between 1.1070-1.11. The spot could drop to 1.10 levels. On the higher side, only a break above 1.1130 could lead to short term bullish momentum in the pair.
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