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GBPUSD Forms Bullish Flag Ahead of UK PMI Reports


Just like the other non-safe haven currencies, the pound lost ground to the dollar in yesterday’s trading. GBPUSD dropped from its intraday high of 1.3149 to bottom at 1.3096. By the end of the New York session, it was 10 pips lower from its opening price at 1.3122.

A wave of risk aversion has been dominating market sentiment. This has been brought about by the new SARS-like coronavirus which started in China and is quickly spreading to other countries. According to this morning’s reports, over 800 people have been infected. Meanwhile, the infection is said to be responsible for the death of 19 people.

However, compared to other currencies, losses on the pound were limited. It could be driven by excitement for the upcoming BOE rate decision which is due next week. With that being said, today’s UK PMI data could provide GBPUSD with support if it shows strength in the services and manufacturing sector.

Due at 9:30 am GMT, the UK services PMI is anticipated to come in at 51.1. The reading is above the 50.0 baseline reading which indicates expansion. On the other hand, the manufacturing PMI is seen at 48.8 which points at a contraction. Positive readings could help fuel speculations that the BOE may no cut rates next week. Consequently, they could push GBPUSD higher.

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GBPUSD Outlook

On the 4-hour time frame, we can see that GBPUSD has been consolidating for the past few trading sessions. This succeeds a strong bullish rally which, in turn, formed a bullish flag. This chart pattern, as its name suggests, is a bullish indicator. On top of that, GBPUSD has also pulled back to the 23.6% Fib level (drawing from the low of January 20 to the high of January 22) and the rising trend line (from connecting the lows of January 20, January 21, and January 23). A bullish close above the high of January 22 could mean that the currency pair is on its way to its December 31 highs at 1.3265.

On the other hand, a bearish close below the low of January 23 at 1.3095 would invalidate the trend line and bullish flag. It may suggest that GBPUSD could drop to its January 20 low at 1.2980.