Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.2800.
• Add a stop-loss at 1.3000.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.2915 and a take-profit at 1.3000.
• Add a stop-loss at 1.2850.

(Click on image to enlarge) 

The GBP/USD pair wavered after the flash July PMI report revealed that the UK economy was doing well. It was trading at 1.2910 on Thursday morning, a few points above this week’s low of 1.2878.

UK economy is recovering

Recent economic numbers have been encouraging for the UK. Data released earlier this month showed that the headline Consumer Price Index (CPI) retreated to the Bank of England (BoE) target of 2.0%. Core inflation also continued falling in June.

The labor market is also moderately strong as the recovery continued. Another report released on Wednesday showed that the manufacturing PMI rose from 50.9 in June to 51.8 in July, beating the consensus estimate of 51.1.

The services PMI rose from 52.1 to 52.4 while the composite figure rose to 52.7 in July. These numbers came a week before the Bank of England (BoE) delivers its interest rate decision.

Some economists expect the bank to slash interest rates by 0.25% while others see it leaving them unchanged. A rate hike next week would happen in a period when the Federal Reserve is expected to maintain its policy intact on Wednesday.

In the US, the manufacturing PMI dropped from 51.6 to 49.5, lower than the expected 51.7, meaning that the sector is contracting. The services PMI rose slightly from 55.3 to 56.

The GBP/USD pair will have more catalysts on Thursday and Friday. In the US, the Bureau of Economic Analysis (BEA) will publish the latest GDP numbers, which are expected to show that the economy grew by 2.0% in Q2.

The US will then release the latest jobless claims and durable goods order numbers. The most important data will come out on Friday when the US will release the latest PCE inflation report.

GBP/USD analysis

The GBP/USD exchange rate has retreated in the past few days. It fell from last week’s high of 1.3045 to 1.2900. On the 4H chart, it is slightly above the 23.6% Fibonacci Retracement level.

It has dropped slightly below the 50-day moving average and is stuck at the first support of the Andrew’s pitchfork tool. The Awesome Oscillator has moved below the neutral point. Therefore, the pair’s outlook is neutral for now. A break below this week’s low of 1.2880 will point to more downside.

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