GBP/USD hits key resistance after upbeat UK services PMI data

GBP/USD hits key resistance after upbeat UK services PMI data
Written by:
Crispus Nyaga
October 5, 2020
  • The GBP/USD pair rose to an important resistance level as investors reacted to strong UK services PMI data.
  • The pair also rose because of the overall weaker US dollar as Trump's health improved.
  • It also reacted to a possibility that the UK and the EU will reach a Brexit deal.

The GBP/USD pair is up for the second consecutive day as traders react to the overall weaker dollar and mixed data from the United Kingdom. It is trading at 1.2956, which is higher than September’s low of 1.2683.

GBP/USD hits key resistance

UK services sector recovery continues

The services sector is the biggest employer in the United Kingdom. According to the government, the sector accounts for more than 80% of the total GDP. The sector employs more than 30 million or more than half of the entire population.

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Therefore, the GBP/USD tends to react strongly to the services PMI data. According to Markit and the Chartered Institute of Supply Management (CIPS), the sector continued to rebound in September as the country continued to recover.

The UK services PMI was 56.1 in September, which was lower than August’s 58.8. The median estimate by analysts polled by Reuters was 55.1. While the PMI declined, it remains above 50, which is a sign that the industry is doing well. The decline was mostly because of the expiry of the Eat Out to Help Out scheme.

According to Markit, the strength of the services sector was mostly because of an uptick in levels of new work. The best-performing companies were in the business-to-business services and real estate industry. However, many companies continued to report weakness because of low tourism numbers. They also pointed to higher operational costs because of Covid-19 contingency measures. Also, business confidence was constrained because of the rising number of Covid-19 cases. In a statement, Chris Williamson said:

“Unsurprisingly, spending in the restaurant sector slumped after spiking higher in August, and many other consumer services activities showed a similar slide back into contraction as renewed lockdown measures were introduced.”

Elsewhere, in the Eurozone services PMI declined to 48.0 while in Germany, the PMI dropped to 50.6.

The GBP/USD pair also rose because of the overall weak US dollar after health officials in the United States confirmed that Trump’s condition was improving.

Additionally, there is still hope that the UK and the EU will reach an agreement on Brexit. In a statement over the weekend, Boris Johnson said that the two sides will intensify the talks with the goal of reaching an agreement in the next few weeks.

GBP/USD technical outlook

GBP/USD technical chart

The daily chart shows that the GBP/USD pair has been in a strong upward trend in the past few days. It has risen from a low of 1.2683 on September 25 to today’s high of 1.2976. This is an important resistance because it is the highest level in September. The price has moved above the 15-day and 25-day exponential moving average. It is also between the Ichimoku cloud and above the ascending trendline that connects the lowest levels in May, June, and September. Therefore, the price is likely to continue rising as bulls aim for moves above 1.3000.