GBP/USD traded higher earlier in today’s session but came under pressure after peaking at roughly 9am ET. As a result of the price action, the pair has failed a test of resistance at the November 11th high at 1.2674. The pair reached 1.2696 for a high and is now trading near 1.2580, up 0.60%.
With a failed test of resistance now in place, GBP/USD is at risk for a further move lower and break back below the 1.2500 level, the area that had been keeping a solid lid on prices prior to today’s breakout.
A drop back below 1.2500 would be a bearish development and leave the target at the November 18th 1.2300 low, which represents a test of the upper boundary of the trading range which encompassed price action following the October 7th flash crash in the sterling.
Should 1.2500 remain intact and GBP/USD make another run to the upside, a sustained move to new rally highs would leave the next target at former key support at the lows established in July and August at the 1.2798-1.2866 zone. A move above this area of resistance is required to suggest a sustainable low has been established in GBP/USD.
In today’s news, the UK’s Markit/CIPS Manufacturing PMI fell to 53.4 from 54.2 in October, undershooting expectations for a rise to 54.5 in a Reuters poll of economists. A clear majority of respondents who offered a reason for rising costs pointed to the weakness of the pound, which is down about 19% against the dollar compared to its level before the June Brexit vote.
In the US, it was reported that the US ISM manufacturing index rose to 53.2 for November from 51.9 in October. This was the strongest reading for five months and above expectations of a more modest increase to 52.1. Of the 18 manufacturing industries, 11 reported growth for November. New orders increased to 53.0 from 52.1 with production rising to 56.0 from 54.6 previously.
Tomorrow in the UK, construction PMI is on the calendar. It is expected to rise to 52.8 from 52.6.
The key data release, however, is US November nonfarm payrolls. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs. The strong ADP report released yesterday sets a positive tone for the BLS report tomorrow. A stronger-than-expected number would be supportive of a rate hike, a development that would likely boost the dollar, thereby pushing GBP/USD lower.
GBP/USD Daily Chart