GBP/USD defends the 100-day SMA, further downside still on the horizon

• GBP/USD found support at a low near the 100-day SMA and then settled at 1.2720.
• The 20-day and the 100-day SMA seem to converge towards the 1.2700 zone to perform a bearish cross.
• The USD and the GBP were the worst performers in the session due to weak PMIs from August.

The GBP/USD lost ground but managed to clear losses after finding support at a daily low of 1.2615, near the 100-day Simple Moving Average (SMA) and then settling above 1.2700. Weak economic activity from the US and the UK were the main reasons for the USD and GBP trading weak agains most of their rivals in Wednesday's session.

The latest data on British Purchasing Managers' Indices (PMIs) for August has raised concerns about the UK’s economy, as the manufacturing sector saw a significant decline, plummeting to 42.5, well within hostile territory. Additionally, the Services PMI also slipped below the 50 mark, registering at 48.7, and both figures came in lower than expected. Interestingly, these disappointing figures contrast with the Bank of England's recent meeting, where they expressed that they no longer project a recession, so weak economic data raised concerns amongst the markets.

During the session, the British bond yield dived and contributed to the Pound being one of the worst performers on Wednesday. The 2-year yield retreated to 4.95%, down by 3.79%, while the 5 and 10-year rates declined to 4.47% and 4.45% seeing daily declines of 4.34% and 4.07%, respectively. According to the World Interest Rates Probabilities (WIRP) tool, markets still discount that the Bank of England (BoE) will raise rates to 6% in this tightening cycle.

PMI showed similar results on the US side, with the manufacturing index dropping higher than expected, but the Services PMI remained in expansion territory. In addition, US Treasury yields also saw sharp declines and tightening expectations on the Federal Reserve (Fed) eased somewhat. Focus now shifts to Jerome Powell’s speech on Friday, where investors will seek further clues on forward guidance.

GBP/USD Levels to watch

The daily chart for the GBP/USD is neutral to bearish for the short term, suggesting that the bears are gaining momentum but still do not have an upperhand over the bulls for the short time. The Relative Strength Index (RSI) points southward below its midline, implying a bearish stance, while the Moving Average Convergence (MACD) displays lower red bars. Additionally, the pair is below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, pointing towards the prevailing strength of the bulls in the larger context. Trades should eye the convergence of the 20 and 100-day SMA’s for a potential bearish cross.

Support levels: 1.2700, 1.2635 (100-day SMA), 1.2615.

Resistance levels: 1.2740 (20-day SMA), 1.2790, 1.2830.

GBP/USD Daily chart