Hike service

GBP/USD bulls target $1.1650 with service sector PMIs in focus

It’s a relatively quiet day for GBP/USD. From the economic calendar, UK services and composite PMIs will attract interest. Markets will be on the lookout for any revisions to the preliminary services PMI.

According to preliminary figures, the services PMI fell from 50.9 to 49.2. An upward revision would provide further support for the pound.

From the Bank of England, there is no speech from the monetary policymakers for the markets to take into account. However, any comments from the central bank to the media following the government’s U-turn on the tax cuts would be worth considering.

GBP/USD rate

At the time of this writing, the pound was down 0.31% at $1.14357.

A mixed start to the day saw GBP/USD hit an early high of $1.14874 before falling to lows of $1.14135.

GBPUSD 051022 Daily Chart

Technical indicators

The Pound needs to avoid the $1.1414 pivot to target the first major resistance level (R1) at $1.1548. Today’s private sector PMIs from the UK and US economic indicators will need to be supportive of the pound to support a breakout.

In the event of another extended rally, GBP/USD would likely test the second major resistance level (R2) at $1.1624 and resistance at $1.1650. The third major resistance level (R3) is located at $1.1835.

Later in the day, the ADP shift in non-farm payrolls and the all-important ISM non-manufacturing PMI will be influential.

A drop through the pivot would see the pound test the first major support level (S1) at $1.1338. Barring an extended sell-off, the pound would likely avoid below $1.13 and the second major support level (S2) at $1.1204.

The third major support level (S3) is located at $1.0993.

GBPUSD 051022 1 hour chart

Looking at the EMAs and the 4-hour chart, the EMAs are sending a more bullish signal. GBP/USD sits above the 200-day EMA, currently at $1.14131.

The 50-day has moved closer to the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals. A bullish cross from the 50-day EMA to the 200-day EMA would support a move back to $1.16.

However, a drop through the 200-day EMA ($1.14131) would give the bears a run to S1 ($1.1338).

GBPUSD 051022 4 hour chart

The American session

It’s a busy day ahead on the US economic calendar. The US labor market and private sector are back in the spotlight.

Ahead of the US opening bell, the ADP September nonfarm payrolls numbers will be of interest. Positive numbers would support a more hawkish Fed rate hike in November.

However, the all-important non-manufacturing ISM PMI must impress to support a breakout of the Dollar Spot Index (DXY). We expect markets to look beyond the headline figure, with prices, employment and new orders sub-components also likely to influence.

Comments from FOMC members will need to be watched, with Raphael Bostic speaking late in the day.