On Tuesday, the overall US Dollar index, which measures USD's strength against a basket of major currencies, witnessed a dramatic turnaround after falling to its weakest level since January 2015. Among major currencies, the GBP/USD pair was dragged lower on data showing contraction in manufacturing activity in April. According to the data released on Tuesday, the Markit/CIPS UK Manufacturing PMI for April dropped below the critical 50.0 mark to 49.2, marking its lowest level since February 2013. The reading for March was also revised lower to 50.7 from 51.0 registered previously. Immediately after the release the GBP/USD pair reversed from 1.4770 level to drop back below 1.4550 level. The spillover effect was felt on the Euro as well. The EUR/USD pair dropped back below 1.1500, reversing from a peak of 1.1616, its strongest level since late August reached earlier on Tuesday.
Investors now turn their attention to a widely watched monthly US private-sector employment number, ADP report, which shows the number of private-sector jobs addition during the month. US economic data on Wednesday also features the release of ISM non-manufacturing PMI figure. From UK, investors will look forward to UK construction PMI data for trading cues.
Technical Outlook
GBP/USD
On Tuesday, the pair broke through an important confluence support near 1.4630 level, comprising of a short-term ascending trend-channel support and 20-SMA. The pair subsequently dropped below 23.6% Fibonacci retracement level of 1.4009-1.4770 up-move. Hence, from current levels the pair seems vulnerable to extend its near-term corrective move towards and important support near 1.4480 level, also coinciding with 38.2% Fibonacci retracement level.
Meanwhile on the upside, 23.6% Fibonacci retracement level near 1.4585-90 area now seems to act as immediate resistance. Even if the pair manages to clear this immediate resistance, any further up-move now seems to be capped at the ascending trend-channel and 20-SMA support break-point, turned resistance near 1.4620-30 area.
EUR/USD
The pair surged past a short-term ascending trend-channel intermediate resistance near 1.1545-50 area, but failed to sustain strength at higher levels. The pair subsequently dropped back below 1.1500 mark to currently trade near 1.1485 level. A follow-up selling pressure below 1.1460 immediate support now seems to extend the Tuesday’s reversal from higher level, towards testing its next major support confluence near 1.1360-55 region. The 1.1360-55 support confluence comprises of 20-day SMA and 23.6% Fibonacci retracement level of a nearly 1000-pips up-swing from 1.0522 to 1.1616.
On the upside, strength back above 1.1500 handle might continue to face hurdle at the ascending trend-channel resistance near 1.1550 level. A sustained break-through this immediate resistance, now seems to assist the pair to surpass Tuesday’s high resistance near 1.1616 and continue climbing higher towards a medium-term ascending trend-channel resistance near 1.1660-65 zone.
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