GBP/USD: Regaining back momentum after manufacturing data dropped

Fundamental brief overview

U.K. manufacturing PMI disappoints further, causing a temporary fall in GBP/USD. The seasonally adjusted Markit/CIPS PMI in the United Kingdom fell to 48.2 in July 2016 from 52.4 in June and below the earlier flash estimate of 49.1. It was the lowest reading since February 2013, driven by a contraction in both levels of production and incoming new orders, as the impact of increased business uncertainty on the domestic market after the EU referendum offset an increase in new export business supported by a weaker pound.

According to commentary from the PMI report, “the decline in production was the steepest since October 2012, with contractions across the consumer, intermediate and investment goods sectors.” But on a more upbeat note, “The level of incoming new export orders in the UK manufacturing sector rose for the second successive month in July,” thanks to both “the recent depreciation of the sterling exchange rate and efforts by companies to secure new contracts.”However, “Purchase price inflation surged to a five-year high in July, reflecting a sterling-induced rise in import costs and higher metal and commodity prices,” so the positive benefits to export from the weaker pound may start to fade soon.

Technical Insights

Currency performances:

1-year performance: -15.26%

6 months performance: -8.1%

3 months performance: -9.71%

1-month performance: -0.32%

Short term time frame: GBP/USD (30min chart)

Trend analysis: Bullish (50 SMA above 200 SMA).

Levels analysis: Critical support levels at 1.3161, 1.3117 and 1.3078. Critical resistance zone at 1.3274 - 1.3299

Price action analysis: Bullish channel, with an accelerated trend.

Summary: Bullish indicators and price action, I am expecting the price to continue its gradual upward momentum to the critical resistance zone at 1.3274 - 1.3299



Long term time frame: GBP/USD (Daily Chart)

Trend analysis: Bearish (50 SMA below 200 SMA)

Levels analysis: Critical support zone at 1.27891 - 1.2852 and resistance zone at 1.3479 - 1.3533

Price action analysis: Broken down from a long-term bearish channel, currently trading in a small triangle formation.

Summary: Bearish indicators and price action, I am expecting the price to test the resistance formed by the bottom channel line before rolling over and continue downwards to the critical support zone at 1.27891 - 1.2852.



Secular Trend (Year on Year%): GBP/USD (Monthly Chart)

Completed cycles: 6

Number of troughs: 6

Number of peaks: 7

Summary: Diminishing growth, awaiting for the next trough to form



Currency's Sentiment (Base on CMC markets clients)

Number of buyers: 58%

Number of sellers: 42%

Position value of buyers: 24%

Position value of sellers: 76%

Overall sentiment: Bearish