Chapter 3  08/23 GBPUSD: Maybe a Breakout Is the Best Structural Pattern for Moving Higher

Abstract: The UK data on Wednesday showed that the composite PMI fell below 50 in August, indicating that private-sector business activities are accelerating. Affected by the data, the GBPUSD was hit hard in the European session and fell below 1.2700. The market is waiting for the US PMI survey.


In August, the UK manufacturing PMI fell from 45.3 to 41.5, a 39-month low and lower than the market expectation of 45.1. The service PMI fell from 51.5 to a seven-month low of 48.7, lower than the expected 50.8. The comprehensive purchasing managers' index fell from 50.8 to 47.9, hitting a 31-month low and contracting for the first time since January. After the data was released, the GBPUSD fell by 0.70% in the day and is now reported at 1.2633.

The PMI survey in early August in the UK showed that it seems inevitable that the economy will contract again, because with the increasingly serious downturn in the manufacturing industry, the spring recovery of the service industry is still difficult, and inflation is expected to slow down further in the coming months; But it also shows that fighting inflation is paying a heavy price.

The risk of excessive tightening by the Bank of England (BOE) has risen. The BOE has been focused on lowering inflation, but it remains high as wages continue to grow. And given the highly fixed nature of the UK mortgage market, most of the effects of the BEE's rate hikes have yet to be felt.

As the cost of living crisis, higher interest rates, export losses, and concerns about the economic outlook have increasingly hit demand, the enterprises reported a decrease in orders for goods and services. Although the cost pressure is still high (mainly due to rising wages), the deteriorating demand environment is inhibiting the pricing power of enterprises. At the same time, the further decrease in employment in August shows that the labor market is losing momentum, which should lead to the reduction of wage pressure.

From this point of view, it seems that the UK economy is gradually stagnant, and may even decline. As the tightening cycle draws to a close, poor PMI data will make the BOE pause for a second thought. Although it is possible to raise interest rates further in September, the PMI data in August will intensify people's speculation that interest rates may peak soon.

Overall, the double signs of weakening economic activity and easing price pressures have given the market more confidence in the view that interest rates will top out at around 5.50% rather than the 6.00% that the market is pricing in. For this reason, the GBPSUD has suffered heavily.

08/23 GBPUSD: Maybe a Breakout Is the Best Structural Pattern for Moving Higher-Pic no.1

Technical Analysis

Today, the main focus of the market is the purchasing managers' index (PMI) data released in Europe, while the data in Germany and the UK have some serious downside accidents. As a result, both the EUR and the GBP were sold off, and investors lowered the ECB's expectation of raising interest rates in September to about 50% while lowering the peak interest rate for the BOE further away from the peak of 6%.

The GBPUSD can be said to be the biggest loser, falling from the level of 1.2750 earlier in the European session to the current level of 1.2630, and testing its 100-day SMA of 1.2635. The GBPUSD faces the risk of collapse after consolidation in the range of 1.2700-1.2800 in the past seven trading days. Among them, the 20- and 50-day SMAs have turned into a straight line, showing a consolidation trend. The continued weakness below the level of 1.2600 may further slide the GBPUSD to a lower trading range of 1.2300-1.2500.

So, will it go further lower? It depends on whether the previous support at 1.2591 will break. If this level breaks, bears will first test the first support at 1.2547 and further declines will be found around 1.2426. Based on the latest developments in the market, the previous support is likely to break. It is recommended to have short-term trading with reference to the first support.

Trading Recommendations

Trading direction: Long

Entry price: 1.2560

Target price: 1.2750

Stop loss: 1.2400

Deadline: 2023-09-06 23:55:00

Support: 1.2545, 1.2457, 1.2430

Resistance: 1.2656, 1.2707, 1.2750

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