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The pound sterling against the dollar (GBPUSD) fell to a new three-month low after investors were left with very few attractive alternatives to the US dollar. This was following disappointing economic data from China and the eurozone. In the midst of a downward spiral, the GBP/USD currency pair moved towards its lowest support level of 1.2482 in three months before settling around the 1.2500 level at the beginning of Thursday’s trading session.
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The downward momentum for the currency pair increased after disappointing data in Europe and China contrasted with a better-than-expected series of U.S. data that increased expectations that the U.S. Federal Reserve could keep U.S. interest rates at current levels for an extended period. Commenting on that, Joe Manimbo, chief forex analyst at Confera, says: “The dollar has been on a seven-week streak of continuous gains, a rise driven in part by fading expectations that the US Federal Reserve will cut interest rates from their highest levels in 22 years to above 5% at any time close”.
Data released yesterday showed that China’s services sector grew at its slowest pace so far in 2023, while services activity in the Eurozone contracted more than expected in August. For his part, Axel Rudolph, chief market analyst at IG, says: “The lower-than-expected Chinese services growth – although still in expansionary territory – helped push the US currency to its highest levels in six months due to high-quality flows.”
The S&P Global agency revised the reading of the Composite Purchasing Managers’ Index for the Eurozone to 46.7 from the reading of 48.6 announced in the initial release. That’s below the combined forecast for 47 and suggests the eurozone economy slipped into contractionary mode in August. And the data raised the spirits of the risk-averse market, which proved its support for the US dollar as a safe haven.
According to the analyst: “The wide-ranging gains pushed the US dollar index to its highest levels in three months.” And “the euro and the pound sterling fell to their lowest levels in 12 weeks against their American counterpart.” And “the pound sterling fell by more than 0.5% to less than 1.26 as risk appetite weakened and spurred the flight to safety in the American currency.”
At the same time, China’s Caixin services PMI survey read 51.6 in August, which was lower than expected at 53.6 and a material slowdown from 54.1 in July. In general, the data confirm that the Chinese economy is still stuck in a long-term slowdown, despite the recent efforts made by the authorities to revive it. For his part, Wael Makarem, senior market analyst at Exness, says that the US dollar is still in a continuous upward trend for more than seven weeks and can continue. And for the likes of GBP and EURUSD, this is important because it is the US side of the equation that will ultimately determine how low these pairs go.
Right now, the trend is down, and there seems to be little logical argument for trying to pick a bottom and challenge this trend.
- The GBP/USD currency pair has now declined to trade several levels below the 100-hour moving average.
- However, Wednesday’s late bounce prevented the pair from falling to oversold RSI saturation levels on the 14-hour frame.
- In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within the formation of a descending channel.
- It also looks like the MACD on the hourly chart has recently completed a bearish cross, indicating bearish sentiment.
Therefore, the bearish speculators will target the extended declines at around 1.2482 or below at the 1.2459 support. On the other hand, the bulls will look to pounce on the rebounds at around 1.2528 or higher at the 1.2550 resistance.
In the long term and according to the performance on the daily chart, it seems that the GBP/USD currency pair is trading within a downward channel. However, the daily MACD seems to be losing momentum indicating a possible pullback. Therefore, the bulls will target potential rebound profits at around 1.2587 or higher at the 1.2675 resistance. On the other hand, the bearers will look to pounce on extended pullbacks around 1.2425 or lower at 1.2334 support.
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