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GBP/USD At Risk Of Further Downsides

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Technical analysis of Forex market

Key Highlights

  • GBP/USD declined heavily and settled below the 1.2865 support area.
  • EUR/USD extended its rally above the 1.1100 resistance area.
  • The UK Manufacturing PMI declined from 51.9 to 51.7 in Feb 2020.
  • The UK Construction PMI is likely to remain at 48.4 in Feb 2020.

GBP/USD Technical Analysis

This past week, the British Pound traded below the key 1.2950 support level against the US Dollar. As a result, GBP/USD extended its decline and traded below the main 1.2865 pivot area.

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Looking at the 4-hours chart, the pair settled below the 1.2850 level and the 100 simple moving average (red, 4-hours). Finally, the pair traded as low as 1.2725 before starting an upside correction.

The pair recovered above the 23.6% Fib retracement level of the main drop from the 1.3018 high to 1.2725 low. However, the recovery wave failed near the 1.2840-1.2850 resistance area.

Moreover, the pair even failed to test the 1.2865 resistance, and the 50% Fib retracement level of the main drop from the 1.3018 high to 1.2725 low. Above the 1.2865 resistance, the next hurdle is seen near the 1.2950 level, the 100 SMA, and a connecting bearish trend line.

Therefore, the pair is clearly facing many hurdles on the upside, starting with 1.2865 and up to 1.2950. On the downside, an initial support is near the 1.2725 swing low, below which the pair could decline towards the 1.2650 support.

Fundamentally, the UK Manufacturing Purchasing Managers Index (PMI) for Feb 2020 was released by both the Chartered Institute of Purchasing & Supply and the Markit Economics. The market was looking for a minor decline from the last reading of 51.9 to 51.8.

The actual result was below the market forecast, as the UK Manufacturing PMI declined to 51.7, but output rose at fastest pace since April 2019.

The report added:

Growth of manufacturing output accelerated to a ten month high in February, as domestic demand continued to recover on the back of reduced political uncertainty. Supply chain disruptions were rapidly emerging,

Overall, GBP/USD could struggle to recover above 1.2865 and it might extend its decline. Conversely, there were strong gains in EUR/USD above the 1.1100 resistance area.

Upcoming Economic Releases

  • UK’s Construction PMI for Feb 2020 – Forecast 48.4, versus 48.4 previous.
  • Euro Zone CPI for Feb 2020 (YoY) (Prelim) – Forecast +1.2%, versus +1.4% previous.
  • Euro Zone Core CPI for Feb 2020 (YoY) (Prelim) – Forecast +1.2%, versus +1.1% previous.