Chapter 32 12/06 GBPUSD: Set the Foundation as the Market Has Once Again Come to the Watershed Between Bulls an
Abstract: The GBPUSD traded below 1.2600 in the day, struggling in cautious market sentiment. The UK service providers re-enter expansion mode. Another round of strong input cost pressure is mainly due to the rising wages of employees. Although the improvement of the service industry is positive, it is affected by the challenge of persistent inflation.
Fundamentals
The UK Services Purchasing Managers' Index (PMI) rose to 50.9 in November from 49.5 in October, indicating expansion for the first time in four months. The composite PMI also rose to 50.7, breaking the threshold of 50 for the first time since July.
Tim Moore, director of global market intelligence and economics at Standard & Poor's, said that in November, the UK service providers re-entered the expansion mode, and the stable demand situation helped commercial activities get rid of the recent malaise. Although the growth of service industry output is insignificant, it is the fastest since July, and slightly stronger than the previous "preliminary" estimate for November.
Supported by the expected moderate improvement in business activities in the coming year, the number of recruits has also resumed growth. However, despite the signs of temporary improvement in new orders, the respondents once again said that customers lack the willingness to spend. Many companies pointed out that the low level of business and consumer confidence, coupled with rising borrowing costs, limited sales opportunities in November.
On the central bank side, the market has increased its bet that the Bank of England (BOE) will cut interest rates ahead of schedule. The financial market has almost completely digested the impact of the BOE's first interest rate cut in June 2024. The BOE will release its monthly financial stability report on Wednesday to let investors know to what extent the BOE tends to be hawkish or dovish.
It is expected that the BOE will continue to convey the message that interest rates may remain at a high level for a longer period, and it seems premature to discuss interest rate cuts. The market now expects the BOE to keep the interest rate at 5.25% and the voting result of 6-3 is unchanged after three members voted for raising interest rates. For the majority of the Committee, hawkishness is less about raising rates and more about keeping them higher for a longer period. Although inflation news since last November has been somewhat muted, economic activity data has been slightly more buoyant.
Technical Analysis
The GBPUSD broke below the 1.2580 support level, signaling that the sharp price rebound from the bottom at the 1.2037 level may have topped out. Meanwhile, the 4-hour MACD is showing a bearish divergence and the Relative Strength Index is turning down in the bullish zone. The intraday bias is mild to the downside, with downside risks persisting with further pullbacks to the 55-day SMA (currently at 1.2427).
In the short term, the GBPUSD may continue to be supported in the coming sessions, especially if it breaks above the recent SMAs. However, a bearish round cannot be ruled out as oscillators suggest a bearish structure in the near term.
From a broader perspective, the GBPUSD's trend from 1.3141 is seen as an adjustment pattern rising from 1.0351. If the price remains resilient above the 200-week SMA and the 200-week SMA, bulls could push the close above the 15-month high at 1.3141. Thus, a successful rise could immediately shift attention to the 2022 high at the threshold of 1.3750. It is recommended to set the foundation.
Trading Recommendations
Trading direction: Long
Entry price: 1.2580
Target price: 1.2896
Stop loss: 1.2520
Deadline: 2023-12-20 23:55:00
Support: 1.2573, 1.2538, 1.2450
Resistance: 1.2653, 1.2732, 1.2747
