GBP/USD - Is UK services PMI a non-event?

The GBP/USD gapped lower in Asia as investors brace up for the general elections in the UK. The pair clocked a low of 1.2851 in Asia following the weekend’s London Bridge terror attack.

Focus on UK election news

The poll, commissioned by The Mail on Sunday puts Labour behind the ruling Conservatives 39 to 40. This marks a 6-point drop in support of PM May’s party from the same poll two weeks ago. Jeremy Corbyn of Labour continues to cut down the gap between him and PM May.

The British Pound does not like the fact that PM May has lost ground, however, the broad based USD sell-off has kept the GBP/USD pair above 1.28 handle.

With only five days left until the Election Day, the British Pound is more likely to ignore the macro data and focus on Conservatives’ lead over Labour.

UK services could beat estimates

UK manufacturing in May grew at a slower rate than April but bettered estimates. The construction PMI unexpectedly jumps to 17-month high in May. The odds are high that the improvement in manufacturing and construction activity may have boosted the demand for services.

Hence, the UK services PMI could beat estimates (expected 55.00, previous 55.8), although the British Pound may not be able to hold on to gains, given the polls suggest heightened odds of a hung parliament.

Traders need to keep an eye on the polls as - other things being equal, bigger the Conservatives’ lead... Stronger will be the Pound and vice versa.

Across the pond, the US 10-year treasury yield fell below 200-DMA on Friday and that could keep the greenback under pressure.

GBP/USD Technicals

The currency pair was last seen trading around 1.2865. A break above 1.2921 (May 31 high) would open up upside towards 1.30 (zero figure).  Only a daily close above 1.3048 (May 18 high) would revive a bigger uptrend, although the resistance could remain intact given the rising election uncertainty. On the downside, breach of support at 1.2829 (June 1 low) could yield a sell-off to 1.2771 (50-DMA) and 1.2755 (Apr 21 low).

On the daily chart, a bullish crossover between 100-DMA and 200-DMA has been confirmed. Again, this is a lagging indicator!

Options activity may weigh over Pound

Investors could buy protection against the sell-off in Sterling (Long Put options). Market makers who write (sell) puts usually initiate shorts in forward markets to hedge their risk. The bearish pressure from forward markets could seep into the spot, given the liquidity in the sport market may drop ahead of the elections.