The U.S. Dollar Index managed to settle above the 92 levels and continues its attempts to settle above the next resistance at 92.15. In case the U.S. Dollar Index gets above this level, it will move towards the resistance at the 20 EMA at 92.30 which will be bearish for GBP/USD.
Today, foreign exchange market traders will have a chance to take a look at the final reading of the UK Manufacturing PMI report for July. Analysts expect that UK Manufacturing PMI declined from 63.9 in June to 60.4 in July.
In the U.S., Manufacturing PMI is projected to increase from 62.1 in June to 63.1 in July. Traders will also pay attention to the ISM Manufacturing PMI report which is projected to show that ISM Manufacturing PMI increased from 60.6 in June to 60.9 in July.
The GBP/USD outlook is mildly bearish after we saw a pullback on Friday amid the Dollar’s strength. However, it is a short-term retracement only.
By and large, nothing unexpected happened. In recent weeks, we have repeatedly said that we expect a renewal of the global recovery trend. Now, of course, it is still not possible to say with certainty that the uptrend has resumed. However, the chances are extremely high.
Last week, and even a week before that, there simply were not so many macroeconomic events that could push to a rally. However, the pound sterling has been growing for two weeks already. So, now new buying of the British currency by large players would be more suitable. But their net position fell below zero (according to the COT report), so their sentiment is now bearish.
This paradoxical situation is explained by the fact that hundreds of billions of dollars from the Fed continue to flow into the American economy, which continues to inflate the money supply and devalue the Dollar. Therefore, this situation arises, in which the largest and most important market players sell off the Pound, and it rises in price. From our point of view, the US Dollar is depreciating faster than the Pound. The inflation data in the UK and the USA indirectly confirm this.
The most important labor market data will be published in the US this week, and the Bank of England will hold a meeting in the UK. All these events are extremely important, but, probably, the reports from ADP and Nonfarm, Payrolls will be even more important.
Nothing supernatural can be expected from the Bank of England now. After the Fed made it clear that there can be no talk of any tightening of monetary policy now, hardly any of the traders will seriously expect the Bank of England to talk about curtailing the QE program or raising rates.
Although formally, it is the Bank of England that is a little closer to the completion of the stimulus program than the Fed, since one of the nine members of the monetary committee has already voted for the reduction of the QE program for two meetings in a row. How will it be this time – we will find out on Thursday.
Actually, this is even the main intrigue of this meeting, which promises to be as passable as possible, as the last Fed meeting. Thus, everything can end with a regular monetary policy report, and that’s it. Since the regulator has no reason to cut the QE program now, the Pound Sterling is unlikely to receive support from the BA.
GBP/USD Short (Sell)
Enter at: 1.3903