GBP/USD tests key resistance after strong UK PMI data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Feb 19, 2021
  • The GBP/USD price rose to a key resistance level after strong UK PMI data.
  • The pair rose to 1.4000, the highest level since April 2018.
  • While UK retail sales disappointed, manufacturing and services PMIs rebounded.

The GBP/USD price relentless rally continued today after signs that the UK recovery was recovering emerged. The pair rose to 1.4000, the highest level since April 2018. 

EUR/USD
GBP/USD

UK recovery signs emerge

There are signs that the UK economy is recovering as the government intensifies its vaccination program.

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In a report, Markit said that the manufacturing PMI increased from 54.1 in January to 54.9 in February. This increase was better than the median estimate of 53.2. The report cited high national and international demand, lengthier delivery times, and rising optimism. 

Further, the services PMI increased from a multi-month low of 39.5 to 49.7. The figure was better than the median estimate of 41.0. While the PMI was below the expansion zone of 50, it is heading in the right direction. As a result, the composite PMI rose from 41.2 to 49.8. 

The GBP/USD reacted mildly to the weak UK retail sales. Data by the Office of National Statistics (ONS) revealed that the headline retail sales declined by 8.2% in January, the worst performance since April last year. The sales fell by 5.9% on an annualised basis. The two figures were worse than the median estimates of 2.5% and 1.3%, respectively. 

In the same period, core retail sales, which exclude the volatile food and energy products declined by 8.8% (MoM) and 3.8% (YoY), respectively. 

Therefore, the GBP/USD rose because analysts were expecting the January data to be weak because of the lockdowns. The PMIs, on the other hand, is more recent because the survey was conducted earlier this month. As such, there are hopes that the Bank of England (BOE) will not push interest rates to the negative zone.

The pair also rose because of the ongoing dollar sell-off. The US dollar dropped by more than 0.40% today as forex traders waited for Congress to unveil its stimulus. They expect the $1.9 trillion stimulus will lead to higher inflation and higher interest rates in the near term.

GBP/USD technical outlook

GBP/USD
GBP/USD chart

The GBP/USD price rose to a multi-year high of 1.4000. On the four-hour chart, the price is along the upper side of the ascending channel. It is also above the upper side of the Bollinger Bands and the short and longer-term moving averages. Therefore, while the bullish trend may continue, there is also a possibility that the pair will go through a pullback. This will happen as bears target the lower side of the channel at 1.3838.

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