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GBP/USD Could Extend Correction As Dollar Starts Recovery

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Aayush Jindal

Key Highlights

  • GBP/USD started a downside correction from the 1.3170 high.
  • There was a break below a key bullish trend line with support near 1.3090 on the 4-hours chart.
  • The UK Manufacturing PMI declined from 53.6 to 53.3 in July 2020.
  • The US ISM Manufacturing PMI increased from 52.6 to 54.2 in July 2020.

GBP/USD Technical Analysis

The British Pound traded further higher this past week above 1.3000 against the US Dollar. GBP/USD traded to a new multi-week high at 1.3170 and recently started a downside correction.

Looking at the 4-hours chart, the pair traded below the 1.3100 and 1.3080 support levels. The decline was such that there was a break below a key bullish trend line with support near 1.3090.

It tested the 23.6% Fib retracement level of the upward move from the 1.2518 low to 1.3170 high. The first major support on the downside is seen near the 1.2920 level. The main support is near the 1.2850 level (the last breakout zone).

The 50% Fib retracement level of the upward move from the 1.2518 low to 1.3170 high is also near 1.2844 to provide support. Any further losses may perhaps lead the pair towards the 1.2800 level.

On the upside, an initial resistance is near the 1.3080 level, above which the pair is likely to revisit the 1.3150 and 1.3170 resistance levels.

Fundamentally, the UK Manufacturing PMI for July 2020 was released by both the Chartered Institute of Purchasing & Supply and Markit Economics. The market was looking no change in the PMI from 53.6.

The actual result slightly lower than the market forecast, as the UK Manufacturing PMI declined from 53.6 to 53.3 in July 2020.

The report added:

July saw a solid improvement in the operating conditions faced by UK manufacturers, as output growth hit a 32-month high supported by the sharpest rise in new order volumes since the end of 2018.

Overall, the result was positive, but the US Dollar seems to be recovering. Therefore, there are chances of more downsides in EUR/USD and GBP/USD in the short-term.

Upcoming Economic Releases

  • Euro Zone PPI June 2020 (YoY) - Forecast -3.9%, versus -5.0% previous.
  • US Factory Orders June 2020 (MoM) - Forecast +5%, versus +8% previous.
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