Pound rallies to the upside even though PMIs print lower than expected

General market theme
Divergent price action in the main currency instruments we monitor in our report over the past 24 hours with the Euro and the Cable taking different paths and illustrating different moods. This week has been filled with tier-2 reports and news leading up to the Non-Farm Payrolls report on Friday and the reason we keep mentioning this report is none other than the fact that it will dictate the Dollar’s outlook for the medium term. We know that the US currency has been under pressure since the beginning of the year and the way the employment report will print will give us a good idea on whether we should expect any further rate hikes in the next few months.

Price action highlights
In the meanwhile the Euro stayed in the same pattern it has been trading in since the beginning of the week, the Single currency edged slightly lower again but pulled back to stay in close proximity to the 1.0850 area. This is a battle of two weakened currencies, on the one hand we’ve discussed the reasons why traders are concerned about the Dollar while on the other the Euro’s outlook is also under doubt with the ECB expected to consider easing further. The bias remains negative though and a round of bullish US news will take the Euro lower towards the 1.0800 support and possible below that.

The Cable’s price action yesterday couldn’t be any farther from Euro’s as the currency posted an impressive correction rally to the upside. What is more impressive is the fact that it posted it on the back of another bearish PMI reading as the Construction sector posted its results. Analysts attribute this rally that took the Pound to the 1.4100 area to the easing of the Brexit concerns but we think that this is nothing more than a relief short-covering attempt. There has been no fresh news to indicate that the Brexit is more or less likely hence the reaction of the Pound can only be technical.

Focus of the day
Following from the past 2 days today the Pound will tackle the release of the most important PMI reading from the Services’ sector where the expectations make word for another bearish reading. Later in the day the release of the ISM Non-Manufacturing levels from the US will attract investors’ attention as this report is a good precursor of the economic and labor activity in the country ahead of the NFP report pending for tomorrow.