Chapter 22  09/05 GBPUSD: Market Failed to Welcome the Third Reversal and Faced Further Selling Pressure

Abstract: During the European session on Tuesday, the GBPUSD faced huge selling pressure. The upward revision of the UK service purchasing managers' index also failed to push up the opportunity to buy the GBPUSD but fell below the technical range.


According to data released by Standard & Poor Global Market Intelligence on Tuesday, the final PMI of the service industry in the UK was 49.5 in August, which was lower than 51.5 in July and the lowest level since January. In addition, the final value of the comprehensive PMI was 48.6, which was lower than 50.8 in July, indicating the first contraction since the beginning of the year.

Tim Moore, S&P's economic director, said that due to rising borrowing costs, weakening business confidence, and tight family financial situation, service providers found that customer spending reversed in August, which all inhibited sales opportunities. After a moderate recovery in the past six months, service enterprises now clearly feel the impact of rising interest rates on customer demand.

Concerns about the broader business environment also curbed spending in August, and companies hinted that the slowdown in economic growth and high inflation in the UK was putting pressure on the outlook.

The latest survey shows that the backlog has been reduced at the fastest rate in more than three years, which further shows that the pressure on the production capacity of enterprises has been reduced. Service providers seem to have stopped recruiting employees gently, and the number of new jobs has dropped to the lowest level since March. However, the survey data in August provided a signal that increased competitive pressure will help to depress the output cost inflation of the entire service economy because the latest round of price increases is the slowest in two years.

Market observation: In August, the service industry presented a worrying picture. The economic cooling effect brought by the rise in interest rates began to affect spending and confidence, and the number of new orders decreased the fastest since December last year. Coupled with the high cost of living and business (mainly due to rising energy costs, fuel prices, and wages), this means that supply chain managers have expressed concern about the development direction of the service industry.

The service industry began to contract this month. Although the industry is shrinking slightly, as the UK economy becomes more vulnerable to domestic and overseas enterprises and the competition among service providers intensifies, there may be an economic downturn in the coming months. With the reduction of backlog orders, the production capacity reached the highest level in three years; As a result, employee recruitment is even more sluggish. As the UK's economic outlook becomes bleak, job seekers' opportunities decrease.

09/05 GBPUSD: Market Failed to Welcome the Third Reversal and Faced Further Selling Pressure-Pic no.1

Technical Analysis

On Tuesday, the USD gained strong upward momentum as safe-haven flows dominated due to looming economic risks in China; for this reason, the GBPUSD came under significant selling pressure. It could induce the GBPUSD to retest 13-week lows.

The GBPUSD has been trending lower since July. With prices recently falling below the 100-day SMA, the near-term outlook for the GBPUSD is particularly worrisome. In addition, technical indicators are showing a continued decline in momentum, with the Relative Strength Index having reversed below the neutral threshold of 50 and the MACD having fallen below the 0-axis.

The new selling strength could weaken between the 50% Fibonacci retracement of the 1.1800-1.3141 uptrend at 1.2470 and the 200-day SMA at 1.2420. If the selling strength of the bears increases further, the downtrend could test 1.2300, where the 61.8% Fibonacci is located.

On the bright side, 1.2625 and the 20-day SMA could limit any potential alternate upside. The bulls would also have to break above the threshold of 1.2700 to activate a potential uptrend. However, such an assumption is like a drop in the bucket, as intraday bears signaled the broader direction is set with a break above the previous low at 1.2548.

Overall, the GBPUSD is facing significant selling pressure after breaking below the previous lows as the GBPUSD continues to trade in a bearish environment. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1.2590

Target price: 1.2420

Stop loss: 1.2700

Deadline: 2023-09-19 23:55:00

Support: 1.2583, 1.2489, 1.2392

Resistance: 1.2578, 1.2613, 1.2643

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