Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2895.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2760 and a take-profit at 1.2700.
- Add a stop-loss at 1.2895.
The GBP/USD exchange rate rally stalled in the overnight session ahead of the upcoming UK and US services PMI data and the ADP nonfarm payrolls (NFP) report. The pair was trading at 1.2787, its highest swing since March 21st.
US and UK services PMI data ahead
This price action happened after the Bureau of Labor Statistics (BLS) revealed that the number of job openings dropped to the lowest point since February 2021. Openings dropped to 8.09 million in April from 8.35 million in the previous month. This decline was worse than the median estimate of 8.37 million.
The next report to watch will be from ADP, which will publish the latest nonfarm parm employment change numbers. Analysts expect the report to show that the private sector added 173k jobs in May, a big drop from the 192k that it added in the previous month.
These numbers will come two days before the US is set to publish the official nonfarm payroll (NFP) data. The median estimate is that the economy created over 180k jobs in May while the unemployment rate remained at 3.9%.
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These reports are important because the Fed has committed to be data-dependent when determining when to start cutting rates. And with the US publishing weak economic numbers, there is a likelihood that it will cut rates as soon as in its June meeting.
The next crucial GBP/USD news will be the UK and US services PMI data. In the UK, the expectation is that the services and composite PMIs dropped to 52.9 and 52.8, respectively in May, signaling that the economy is slowing.
In the US, the expectation is that the ISM non-manufacturing PMI rose from 49.4 in April to 51.0 in May. On Monday, a report by the ISM showed that the manufacturing PMI crashed in May, which is a sign that the economy is not doing well.
GBP/USD technical analysis
The GBP/USD exchange rate has drifted upwards in the past few weeks. It has moved from last month’s low of 1.2300 to about 1.2800, its highest level since March 21st. The pair has remained slightly above the 25-period moving average on the four-hour chart.
It has also risen above the upper side of the descending trendline that connects the highest swings since July last year. Therefore, the pair will likely continue rising as buyers target the crucial resistance point at 1.2895, its highest swing on May 8th. A drop below the support at 1.2725 will invalidate the bullish view.
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