The GBP/USD pair rose to a high of 1.5445 in the early European session on Monday, but offers pushed it back to 1.54. Once below 1.54, fresh offers in the early US pushed it lower further to 1.5359, which was followed by a sharp bounce back to 1.5419 levels. The sell-off was on account of the broad based USD strength, which overshadowed a healthy construction activity figure.
UK Services PMI could be better-than-expected
The UK services PMI for October is seen rising to 54.5 from September’s 53.3. Services activity forms the major part of the UK economy and thus a strong figure could lead to a rally in Sterling. The likelihood of the actual figure beating estimates by a wide margin is high. Past patterns show that a super strong manufacturing PMI (as released on Monday) usually pulls up services PMI figure. It remains to be seen if the pattern is repeated today.
Three scenarios can be built around the services PMI report
PMI above 54.5 – A higher-than-expected figure could trigger a rally to 1.55 levels. Further gains would need a daily close above 1.55, which may happen if the services PMI is way higher than forecasts and the US ADP is surprisingly weak.
PMI around 54.5 – That could leave Sterling largely unaffected and traders shall have to wait for the US ADP in order to determine if the Sterling could break above 1.55
PMI below 54.5 – A re-test of 1.5380 or previous day’s low at 1.5359 in case of a horribly weak number could be seen.*
Technicals – Bullish bias intact
The sharp recovery from the NY session low of 1.5359 and a close above 1.5414 (23.6% of Oct low-Oct high) has increased the odds of a bullish move towards 1.55. *Consequently, the bears may remain on the sidelines even if the PMI is weak. The immediate upside appears capped at 1.55 handle (repeated failure to take out 1.55 from Oct 15-Oct 22). A daily close above the same would increase the odds of a further rally to 1.5568 (38.2% of Jul14-Apr15 plunge). On the downside, 1.5379 (38.2% of 1.5819-1.5107) could offer support, breach of which could send the pair lower to 1.5355 (38.2% of Oct low-high). However, the charts are pointing to a re-test of 1.55 levels today.
EUR/USD Analysis: Inverted head and shoulder in the making, Eyes services PMI
The EUR/USD pair fell back to 1.0940 (61.8% of Mar to Aug rally) in the early US session on Monday and has been trading around the same since then. The break below 1.10 handle in the European session not only opened doors for more weakness, but also triggered a broad based USD rally. A weak factory orders print released in the US had little soothing effect as traders remain fixated on the Fed rate outlook.
Eurozone services PMI due
The services PMI figures across the Eurozone are due for release. However, the shared currency hardly reacts to PMI data anymore. This has been the behaviour ever since the EUR took up the role of the funding currency. Moreover, it would react more to the sentiment in the European equity markets. In case the German and Eurozone services PMI are strong/weak enough to trigger risk-on/risk-off then the EUR may drop/rise. But the prospects of risk-off are low as the Chinese services PMI released earlier today printed at 8-month high on the back of rise in new business. Hence, the currency may remain under pressure and the gains, if any, could be muted ahead of the US ADP report.
Later in the US session, the ISM non-manufacturing print and the employment sub index would be watched out by the markets. The employment subindex under ISM manufacturing report was horribly weak, but it failed to kill the US dollar.
Technicals – Inv. head and shoulder neckline around 1.1030
So long as the pair does not witness an 4-hour close below 1.0940 (61.8% of Mar to Aug rally), the likelihood of the pair forming an inverted head and shoulder with neckline resistance around 1.1030 is high. Last week, the pair also formed a bullish RSI divergence on the 4-hour chart. Hence, the odds of the pair forming an inverted head and shoulder formation are high till it trades above the last week’s low of 1.0897. A break above 1.1030 would open doors for a re-test of 1.1088 (50% of Mar to Aug rally). On the other hand, a break below 1.0897 (last week’s low) could push the pair back to 1.0808 (July low).
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