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GBPUSD Recoups Losses on Brexit Fears Thanks to Positive Construction PMI

    Summary:
  • GBPUSD pared some of its losses yesterday thanks to the better-than-expected UK construction PMI. Can the final services PMI help fuel its rally today?

Yesterday was a volatile day for GBPUSD. The currency pair initially fell to its 6-week lows at 1.2940 on hard-Brexit concerns but quickly recovered its losses. Thanks to positive UK data, GBPUSD traded steadily higher and closed at 1.3028, up 40 pips from its opening price.

Brexit Woes Weigh Down the Pound

The sell-off on GBPUSD was initially triggered by diverging remarks from the EU and UK. On Monday, Chief Negotiator for the European Union Michael Barnier said that they would demand for the UK to commit to rules that ensure fair market competition. In response, UK Prime Minister Boris Johnson threatened to abandon negotiations if the EU forces the country to comply to stringent rules. Consequently, these remarks raised concerns that the UK would crash out of the European Union and risk its economic growth.

Better-Than-Expected Construction PMI

Luckily for GBPUSD bulls, the construction PMI for January topped expectations. The reading was at 48.4 which is the highest we have seen since June 2019. It also beat the consensus at 48.1. While it is still below the 50.0 baseline reading that indicates growth, it suggests that the sector is improving.

Final Services PMI Due Today

Today, only the final services PMI report is due from the UK. A reading higher than the forecast at 52.9 will probably be bullish for GBPUSD as it would indicate that the services industry is growing faster than expected.

Read our Best Trading Ideas for 2020.

GBPUSD Outlook

On the 4-hour time frame, we can see that support at previous lows held on GBPUSD around 1.2975. There were even enough buyers to push the currency pair above the 1.3000 handle. In order for GBPUSD to trade higher, it will need to clear resistance at 1.3050. This price coincides with the 38.2% Fib level (when you draw from the high of January 31 to yesterday’s low) as well as the 100 SMA and 200 SMA. A bullish close around 1.3070 could indicate that the currency pair may soon rally to around 1.3140  where it peaked on January 22.

On the other hand, if there are not enough buyers to push GBPUSD past the 38.2% Fib level, we could see it drop again to yesterday’s low at 1.2940.

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