Bears target below $1.24 ahead of central bank testimony

Sub Levels

A relatively busy day for GBP/USD. The private sector PMI provisional figures for May will be watched closely. With the Bank of England under pressure to contain inflation, the PMI reading will influence market sentiment on the Bank of England’s next monetary policy move.

While the manufacturing PMI will be the center of attention, the services PMI will have a bigger impact. However, investors should also consider sub-factors such as hiring, pricing and new orders. Rising price pressures and stabilizing labor market conditions could make the central bank’s policy outlook more hawkish.

Economists expect the manufacturing PMI to rise to 48.0 from 47.8 and the services PMI to fall to 55.5 from 55.9.

With the focus on the UK private sector, investors should also pay attention to the Bank of England’s comments. Bank of England Governor Andrew Bailey, Chief Economist Hugh Pill, Monetary Policy Committee members Catherine Mann and Silvano Tenreiro will attend a special hearing by the Treasury on the May monetary policy report. MPC member Jonathan Haskell will also speak today.

GBP to USD price action

The GBP/USD fell 0.05% to $1.24307 this morning. The day started mixedly, with GBP/USD rallying to early highs of $1.24465 before falling to lows of $1.24254.

GBPUSD 230523 daily chart

technical indicator

Resistance and support levels

The pound needs to cross the first major resistance level (R1) at $1.2468 and the $1.2441 pivot to target Monday’s high of $1.24721. A return to $1.2450 could extend the breakout session. However, the pound will need news related to the PMI, central bank stories and the US debt ceiling to support the breakout session.

If the rally continues, GBP/USD will likely test the second major resistance (R2) at $1.2499. The third major resistance is at $1.2558.

If the pivot fails, the first major support level (S1) remains at $1.2409. However, the GBP/USD should avoid breaking below $1.2350 unless further risk-off selling occurs. The second major support level (S2) of $1.2382 should cap the downside. The third major support level (S3) is at $1.2323.

GBPUSD 230523 hourly chart

Looking at the EMA and the 4-hour chart, the EMA is sending a bearish signal. GBP/USD has broken below the 200-day EMA, currently at $1.24580. The 50-day EMA approached the 200-day EMA and the 100-day EMA narrowed to the 200-day EMA, sending a bearish signal.

A breakout of the 200-day EMA ($1.24580) will support a breakout from R1 ($1.2468), targeting the 50-day ($1.24766) and 100-day ($1.24911) EMAs and R2 ($1.2499). Become. However, if the 200-day EMA ($1.24580) fails, S1 ($1.2409) will remain in view. A breakout of the 50-day EMA will send a bullish signal.

GBPUSD 230523 4-hour chart

usa session

Looking ahead to the US Congress, it will be a busy day on the US economic calendar. Preliminary US private sector PMI data for May should provide direction. Headline numbers matter, but investors should consider subcomponents. Hiring, pricing and new order factors are expected to have the most impact.

However, Fed commentary and news related to the debt ceiling will have an impact. Overnight, US President Joe Biden and Speaker of the House Kevin McCarthy failed to reach a deal to raise the debt ceiling, weighing on GBP/USD.

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