GBP/USD Forecast: Rally at risk of weaker-than-expected UK services PMI

The GBP/USD pair rose to an intraday high of 1.5364 on Tuesday before falling back to the critical support level at 1.5336-1.5330. The early break above the strong resistance of the hourly 50-MA was a result of a sharp rally in the EUR/USD over and above 1.11 levels. The pair clocked a high of 1.5324 before falling back below 1.53. However, it ran into fresh offers at 1.5270-1.5280 after the US factory orders contracted in April.

The sharp rally witnessed in the previous session is now at a risk of a weaker-than-expected UK services PMI data. Off late the macroeconomic data out of the UK has consistently disappointed consensus estimates. Thus, doors are open for a downside surprise (exp: 52.9, prev: 59.5). Services activity forms a major part of the UK economy. Hence, the bearish reaction in case of a weaker print is likely to be more than the 100-pip fall witnessed after the release of a weaker-than-expected manufacturing PMI on Monday.

The pair currently trades at 1.5350; above the critical support of 1.5336 (38.2% Fib R of 1.4564-1.5813). The immediate resistance is seen at 1.5365 followed by resistance at 200-DMA located at 1.5377. Only a break above 1.5377 could see the pair rise to its 1.5417 (76.4% Fib expansion of 1.5813-1.5445-1.5698). On the downside, a break below 1.5336-1.5330 (100% Fib expansion of 1.5813-1.5445-1.5698) could shift risk in favor of a fresh sell-off to 1.5260 (hourly 50-MA). However, the bullish RSI on intraday timeframe and a break above strong resistance of hourly 50-MA in the previous session, indicates the pair is more likely to extend the gains to 1.5417 today.

EUR/USD Analysis: EUR rallies ahead of the ECB

The single currency rallied to as high as 1.1193 due to optimism for Greek deal together with the release of unexpectedly weak US factory orders which slipped 0.4% after a slightly upwardly revised 2.2% increase in March.

A monetary policy announcement from the European Central Bank (ECB) is due later today. A change in policy is highly unlikely. However, markets would watch out for Greece-related commentary by the ECB President Mario Draghi. The President is also likely to sound upbeat on the positive impact of the QE on the economic growth. Meanwhile, the services PMI data due for release ahead of the ECB event could trigger minor moves in the pair.

The pair now trades at 1.1180, after having bounced from 1.1141 (50% Fib R of 1.1465-1.0817) during the overnight trade. A break above the previous session’s high at 1.1190, could open doors for 1.1217 (61.8% Fib R of 1.1465-1.0817). However, an overbought RSI on the intraday time frame tells me the pair could run into fresh offers anywhere between 1.12-1.1217. In such a case, the pair could make its way back to 1.1141, under which the pair could drop to 1.1082 (38.2% Fib R of 1.0461-1.1465). Only an hourly close above 1.1228 (23.6% Fib R of 1.0461-1.1465) could bring in fresh buying interest.