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GBP/USD In Major Downtrend Below 1.2750

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Aayush Jindal

Key Highlights

  • The British Pound extended its decline below the1.2600 support area against the US Dollar.
  • GBP/USD remains in a strong downtrend unless itrecovers above 1.2750.
  • The UK Manufacturing PMI declined sharply from53.1 to 49.4 in May 2019.
  • The UK Construction PMI might remain stable at50.5 in May 2019.

GBPUSD Technical Analysis

In the past few weeks, there was a steady decline in GBP/USD below 1.2800 and 1.2700. The British Pound even settled below 1.2700 to move into a major downtrend against the US Dollar.

GBPUSD Technical Analysis British Pound US Dollar

Looking at the 4-hours chart, the pair failed to stay above1.3000 and started a significant decline below 1.2900, 1.2800 and even 1.2700.Finally, the pair broke the 1.2600 support and settled below the 100 simplemoving average (red, 4-hours).

A new monthly low was formed at 1.2558 before the pairstarted a short term upside correction. It recovered above the 1.2620 level andtested the 50% Fib retracement level of the downward move from the 1.2747 highto 1.2558 swing low.

However, there are many hurdles for the bulls waiting nearthe 1.2675 and 1.2700 levels. There is also a bearish trend line formed on thesame chart with current resistance near 1.2780.

The main resistance is near the 1.2750 level and the 100simple moving average (red, 4-hours). A successful close above the 1.2750resistance could start a decent recovery in the near term.

Conversely, if the pair fails to move above 1.2700 or 1.2750,it might continue to move down towards 1.2500 in the coming days.

Fundamentally, the UK Manufacturing Purchasing ManagersIndex (PMI) for May 2019 was released by both theChartered Institute ofPurchasing & Supplyand theMarkit Economics. The market was lookingfor a minor decline from 53.1 to 52.0.

However, the actual result was disappointing since there wasa sharp decline to 49.4 (fell below the neutral 50.0 benchmark for the firsttime since July 2016).

The report stated that:

Manufacturers reported increased difficulties in convincing clients to commit to new contracts during May. This mainly reflected the already high level of inventories following recent stockpiling activity in advance of the original Brexit date.

Overall, GBP/USD remains in a strong downtrend and there isa risk of more losses below the 1.2550 and 1.2500 levels in the near term.

Economic Releases to Watch Today

  • UK’s Construction PMI for May 2019 – Forecast 50.5,versus 50.5 previous.
  • Euro Zone CPI for May 2019 (YoY) (Prelim) -Forecast +1.3%, versus +1.7% previous.
  • Euro Zone Core CPI for May 2019 (YoY) (Prelim) -Forecast +0.9%, versus +1.3% previous.
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