Forex Market: GBP/USD daily trading outlook

Fridays trade saw GBP/USD within the range of 1.5345 – 1.5234. The pair closed the day 0.16% lower at 1.5291, falling for a sixth straight session and settling the week 1.28% lower.

At 07:09 GMT today GBP/USD was down 0.05% for the day to trade at 1.5278. The cross held in a daily range of 1.5259 – 1.5305.

Fundamentals

United Kingdom

Activity in the United Kingdom’s sector of manufacturing probably grew at a faster pace in May from a month earlier, with the corresponding PMI expected to come in at a reading of 52.5, according to the median forecast of experts, from 51.9 in April. If so, this would be the 26th consecutive month when the PMI stood above the key level of 50.0.

The index is based on a survey encompassing managers of companies that operate in the sector of manufacturing. They are asked about their estimate in regard to current business conditions in the sector in terms of new orders, output, employment, demand in the future. Values above 50.0 signify that respondents are rather optimists than pessimists. Higher-than-projected PMI readings would boost demand for the sterling. The Chartered Institute of Procurement & Supply (CIPS) is expected to announce the official reading at 08:30 GMT.

United States

Personal spending in the United States probably rose 0.2% in April on a monthly basis, from 0.4% a month earlier, while personal income likely increased 0.3% after remaining flat in March, which ended 14 straight months of growth. Higher-than-expected rates of increase imply good employment conditions and, therefore, are dollar positive.

The Core Personal Consumption Expenditure Index, a gauge measuring the price of goods and services purchased by consumers for the purpose of consumption, likely rose 0.2% in April, following three months of 0.1% growth, while year-on-year it probably remained unchanged at 1.3% from a month earlier. This measure excludes the more volatile food and energy items. The Bureau of Economic Analysis is to publish the official figures at 12:30 GMT.

Manufacturing activity

The final estimate of Markits Manufacturing Purchasing Managers Index for May will probably exceed a preliminary reading of 53.8 released on May 21st, projected to come in at 54.2. Mays preliminary reading reflected the weakest improvement in overall business conditions since the start of 2014. New orders posted the slowest rise since January 2014, but job creation maintained a robust pace. In April, the final seasonally-adjusted PMI stood at 54.1.

“Although falling only modestly, export sales have now dipped for two straight months, something not seen for two years and a far cry from the solid export performance seen this time last year,” said in the report Chris Williamson, Chief Economist at Markit. “Despite signs of price pressures picking up, the survey is likely to encourage policymakers to err on the side of caution, especially in relation to any further damaging impact of the stronger dollar on growth and earnings if policy were to be tightened. Any decision on hiking interest rates is therefore likely to be put off until later in the year.”

Values above the key level of 50.0 indicate optimism (expanding activity). Higher-than-expected PMI readings would cause a bullish impact on the US dollar. The data are due out at 13:45 GMT.

A separate and more widely tracked report on US manufacturing activity is also expected to show a slight improvement in sector growth in May. The ISM Manufacturing PMI may have risen to 52.0 last month after coming in at 51.5 in both April and March, the lowest since May 2013. While new orders rebounded in April to 53.5 from 51.8 in March, the broadly tracked employment sub-index fell into the area of contraction for the first time since May 2013, dropping to 48.3 which was the poorest performance since September 2009. It is expected to have increased to 49.3 in May.

The ISM Manufacturing PMI is a compound index, which represents manufacturing activity in 18 different industries. It is comprised of four equally-weighted components: seasonally-adjusted employment, seasonally-adjusted production inventories, seasonally-adjusted new orders and supplier deliveries. The index is based on a survey of 300 purchasing managers.

Participants can either respond with “better”, “same”, or “worse” to the questions about the industry, in which they operate. The resulting PMI value is measured from 0 to 100. If the index shows a value of 100.0, this means that 100% of the respondents reported an improvement in conditions. If the index shows a value of 0, this means that 100% of the respondents reported a deterioration in conditions. If 100% of the respondents saw no change in conditions, the index will show a reading of 50.0. Therefore, readings above the key level of 50.0 are indicative of expanding activity in the sector. In case the PMI accelerated more than anticipated, this would have a bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.

Pivot points

According to Binary Tribune’s daily analysis, the pair’s central pivot point stands at 1.5290. In case it penetrates the first resistance level at 1.5346, it will encounter next resistance at 1.5401. If breached, upside movement may attempt to advance to 1.5457.

If the cross drops below its S1 level at 1.5235, it will next see support at 1.5179. If the second key support zone is breached, downward movement may extend to 1.5124.

In weekly terms, the central pivot point is at 1.5345. The three key resistance levels are as follows: R1 – 1.5455, R2 – 1.5620, R3 – 1.5730. The three key support levels are: S1 – 1.5180, S2 – 1.5070, S3 – 1.4905.